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NEW DELHI, Oct 16 (AFP) - Indian households are on a record gold-buying spree as oil price-driven inflation threatens to wipe out savings from rising incomes in one of the world's fastest-growing economies.
Gold consumption in India, the world's largest market for the precious metal, has shot up by 50 per cent in the first half of the year to 508 tonnes, only a little less than the 642 tonnes consumed during the whole of last year, the World Gold Council said.
The price of gold surged to an all-time high of 6,990 rupees (156 dollars) per 10 grammes (442 dollars an ounce) in India this week, though it dropped marginally later.
However, the prices are likely to start climbing once again with the wedding and festival season starting among the population of 1.1 billion, brokers said.
"There is a new found confidence in gold. Whoever has invested in gold, has made extra money. People are also turning to it as a hedge against the high oil prices," said Jatin Mehta, head of gold trading firm Suraaj.
Two successive hikes in petrol prices since June is stoking India's inflation rate, which crept above four per cent in the week ended October 1. India's central bank has predicted inflation will range between 5.0 to 5.5 per cent this fiscal year.
The income of middle class Indian families has been going up with the economy growing at a robust seven to eight per cent, but putting their savings in banks is yielding little as the interest rate of four to five per cent is barely on par with the inflation rate.
Traders said the price of gold was likely to rise another five to 10 per cent by the year-end as more and more people invest their savings and demand for jewellery soars during the October to February festival and marriage season.
The yellow metal rose to a new near-18-year high in Europe Monday and was seen hitting the next big level of around 480-500 dollars an ounce amid buying by funds over inflation worries.
"The linkages between international prices and Indian gold are very close. The demand in India is also because of increasing income levels, due to the rising economic growth rate," said Sanjeev Agarwal, head of the Indian office of World Gold Council.
India's economy expanded 8.1 per cent in the three months to June, compared to 6.9 per cent over the last financial year ended March.
Indian consumers said their decision to buy was not just influenced by economic factors, but traditional preference for gold on special occasions.
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