Indian gold imports could spurt briefly higher during the current slack season if global prices fall, giving jewellers the opportunity to replenish depleted stocks, traders said on Monday.
But sustained demand in the world's largest gold consuming market will return only in August after the Hindu festival season begins and in the run-up to the winter harvest, they said.
"Prices of around $345 an ounce could be a good level for people to build inventories, which have shrunk over the past month due to poor buying following firm and volatile prices," said Ranjit Rathod, a trader based in the southern city of Madras.
Global gold prices were quoted at $356 an ounce on Monday.
India imports an average of 1.6 tonnes of gold a day to meet 70 per cent of its annual needs of more than 800 tonnes.
Local gold demand has waned since mid-May, when the five-and-a-half-month Hindu marriage season ended, and farmers, who account for about 70 per cent of India's annual gold demand, began sowing crops.
Daily gold imports into Madras have tumbled to about 75 kg from city's average of 175-200 kg, Rathod said.
Global gold prices have been tracking the euro's firmness against the dollar, which sent bullion to a 15-week high of $374.40 in late May, while the dollar's subsequent comeback shunted gold as low as $351 on June 10.
Because spot bullion is priced in dollars, the fluctuating value of the U.S. currency affects the gold buying power of holders of other currencies, while changing the metal's profile as an alternative investment.
Traders said further strengthening of the dollar could drag gold prices down.
The euro dropped to a one-month low of $1.1538 on Monday as the market bet that a likely Federal Reserve rate cut this week would help the U.S. economy recover more quickly than the EU.
Rural demand
"If the monsoon progresses well, we will see active buying from August as farmers may devote their idle money to purchasing jewellery," said Nayan Pansare, a gold trader.
Jewellery demand in rural India surges with a good harvest as farmers tend to turn to gold for financial security.
After a delayed start, the southwest monsoon is progressing well and has covered almost half of the country. Sowing for winter crops has started.
Last year, India suffered its worst drought in 15 years due to poor monsoon rainfall, hurting crop output and lowering farmers' incomes.
