Gold demand in the world’s biggest consumer India risks falling for a second straight year in 2015, as millions of Indian farmers hit by erratic weather and falling commodity prices trim gold purchases.
Nearly two-thirds of India’s gold demand comes from rural areas where jewelry is a traditional store of wealth for millions who have no access to the formal banking system.
A downturn in Indian demand could hit global gold prices XAU= already struggling to rebound with a looming hike in U.S. interest rates and slower demand from No.2 consumer China.
“Demand could drop to 700 tonnes. There is a liquidity crunch in rural areas,” Prithviraj Kothari, vice president of India Bullion & Jewellers’ Association, told Reuters.
“Instead of buying new jewelry, many farmers are exchanging old ornaments for new.”
Farmer Savliram Barkade had planned to buy a few grams of gold for his family during the Akshaya Tritya festival later this month, considered by many Indians to be an auspicious day to buy jewelry or property.
But unseasonal rains destroyed his onion crop and forced him instead to pledge his existing family gold to repay a loan.
“The onion yield halved due to heavy rains. Even the harvested crop fetched lower prices due to poor quality,” said the 65-year-old, a farmer in the Ahmednagar district in India’s western state of Maharashtra, 250 km (160 miles) east of Mumbai.
In 2014, India’s gold demand was 842.7 tonnes, 14 percent down from the previous year, but still ahead of China.