India, the economy of the world’s largest consumer market for gold, appears to be hurting badly. Inflation in India seems to be rising, while industrial production there is falling.

India’s rate of inflation increased to 7.2% in April from 6.9%, the Associated Press reported. This rate was actually higher than what the Indian government had earlier predicted. The biggest price increases were food, which now costs 10.5% more than it did in April 2011. Prices for manufactured goods were rising at a slightly lower rate of 5.1%.

This could be both good news and bad news for gold miners. The bad news is that Indians who traditionally spend big money on jewelry made from precious metals will have less to spend. The good news is that Indians with money may start buying more gold as a hedge against inflation, which could increase demand and prices.

The situation in industrial was made worse by a fall in industrial production there. India’s industrial output fell by 3.5%, March Britain’s Daily Telegraph noted. That means fewer Indians could be working and making enough money to buy more gold money. It also means lower demand for metals from India’s industry.

This will obviously make the price of gold even more volatile, which will hurt the stock of gold producers like GoldCorp (GG) and Barrick Gold (ABX). Particularly hard hit will be the major producers that have invested heavily in new mines and production. The increased demand for gold that they were relying upon may not be there.To continue reading, click here.