By Rajendra Jadhav
MUMBAI (Reuters) - India's gold demand is likely to remain soft in second quarter after falling 18% in the first quarter as retail purchases during a key festival early next month could be below normal because of volatile prices, the World Gold Council (WGC) said on Thursday.
Lower purchases by the world's second biggest gold consumer could weigh on prices, which are trading near their lowest level in two months.
But falling demand for gold imports could help narrow India's trade deficit and support the ailing rupee.
"Demand could be subpar during Akshaya Tritiya," Somasundaram PR, regional chief executive officer of WGC's Indian operations told Reuters.
Indians will celebrate annual Hindu and Jain holy festival of Akshaya Tritiya early next week, when buying gold is considered auspicious.
India's demand for gold fell 18% from a year ago to 135.5 tonnes in the first quarter as jewellery consumption fell 26% from a year ago due to higher prices and fewer weddings, the WGC said in a report.
"Consumers are linking higher prices to the Ukraine war and expecting them to come down once war is over. That is making them postpone the purchases. This is going to continue in this quarter," Somasundaram said.
Local gold prices started the year at 48,050 rupees per 10 grams, but jumped to 55,558 rupees per 10 grams in March after Russia invaded Ukraine.
Higher prices lifted availability of old jewellery and coins, also known as scrap supplies, by 88% from a year ago to 27.8 tonnes in quarter ending March, Somasundaram said.
The WGC was earlier estimated India's gold consumption in 2022 will likely be 800-850 tonnes, but softness in demand in the first quarter prompted it to lower the estimate to 800 tonnes.
Demand for coins and bars, known as investment demand, rose 5% in March quarter to 41.3 tonnes as rising prices and volatility in equity markets lured investors, the WGC said.
Indian consumers are keen to buy gold but higher prices and rising inflation are limiting purchases, Somasundaram said.
"Inflation is really nasty as disposable incomes are going down. Reason to hold gold would be high but ability to buy would be low," he said.
(Reporting by Rajendra Jadhav; Editing by Marguerita Choy and David Evans)