“Demand is going to be subdued, given the state of the economy and the sentiment,” Ajay Mitra, managing director, Middle East and India at the council, said in a phone interview from Mumbai. “People are preferring to stay invested in cash because of uncertain times. They aren’t very optimistic about the economy and the way the future looks.”

Consumers are trimming purchases from cars to gold as India’s economy expanded 5.3 percent in the three months through March, the slowest pace in nine years, and as inflation exceeded 7 percent for a fifth straight month in June, data showed today. Poor monsoon rains will also crimp demand, Mitra said.

“A bad monsoon will lead to higher inflation and higher costs for essentials, which again will leave lesser amounts of money in the hands of consumers for discretionary spending,” he said. “It will cut spending again across all categories.”

India’s monsoon, which accounts for more than 70 percent of annual rainfall, may be less than forecast in July and will be deficient in September, L.S. Rathore, director general of the India Meteorological Department, said. Rains are 22 percent below a 50-year average since June 1, the forecaster said on its website.

‘Poor Start’

The nation faces challenges in sustaining record grain harvests because of deficient monsoon rains, Agriculture Minister Sharad Pawar told reporters in New Delhi. Rural farming areas account for about 60 percent of gold buying in India, according to UBS AG.

“While it is certainly a poor start, it’s too early to tell if this year’s monsoon will fall short,” London-based UBS analyst Edel Tully wrote in a July 12 report. “For gold, while the initial indicators aren’t so good, there’s still time for some optimism to grow.”

Gold demand in India may drop to 800 metric tons to 900 tons this year from 933.4 tons, Albert Cheng, Far East managing director at the London-based council, said in May. Usage in China will expand 13 percent to 870 tons this year, less than the 1,000 tons forecast in May, Cheng said July 10.

Spot gold fell 0.2 percent to $1,586.55 an ounce at 2:12 p.m. in Mumbai. The metal, which reached a record $1,921.15 last September, has rallied for 11 straight years as investors sought protection from weaker currencies and inflation.

Inflation, Rupee

India’s wholesale-price index rose 7.25 percent from a year earlier, after climbing 7.55 percent in May, the commerce ministry said in a statement in New Delhi. The median of 36 estimates in a Bloomberg News survey was 7.61 percent. India’s automakers group last week cut its annual forecast for car sales growth to as low as 9 percent as high gasoline prices and interest rates deterred buyers.

Bullion demand declined to 207.6 tons in the quarter ended March 31 from 290.6 tons a year ago, it said May 17. It has yet to release second-quarter data.

Demand may shrink 30 percent this year because of a record decline in the rupee and higher import taxes, Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation, said on May 23. Jewelry sales probably fell 30 percent to 40 percent in the three months ended June 30 after the currency slumped, driving gold prices to a record, he said.

Bullion for August delivery fell 0.2 percent to 29,222 rupees ($531) per 10 grams on the Multi Commodity Exchange of India Ltd. at 1:11 p.m. in Mumbai. Prices reached a record 30,428 rupees per 10 grams on June 19.

The gold jewelry market “remains under pressure” as the fall in the rupee keeps prices near record levels, Citigroup Inc. said in an e-mailed report today.

“Rural gold jewelry purchases in India, a key element in the Indian jewelry market, are expected to suffer as reduced harvests negatively impact disposable incomes,” the bank said.