Demand for gold in India, the world's largest consumer, has been low this festival season because of firm prices which hit 16-year highs this week with the weakening of the dollar, traders said on Tuesday. The season, which begins in August and ends in November, generally fuels buying of gold jewellery and coins, but high prices have forced many people to postpone their purchases or shift to consumer goods, they said.
Jewellery accounts for about 85 percent of Indian gold demand.
"There is so much of a rush for consumer goods that people have no place to stand in those shops. But jewellery stores have enough space for people to sleep," said Ranjeeth Rathod, a bullion dealer based in the southern city of Madras.
He said gold demand in Madras had fallen to about 100 kg a day from an average of 250 to 300 kg.
Bullion traders in Bombay, the country's financial capital, said demand was hardly 20 percent of the 450-500 kg generally seen during the festival season.
Gold rose to $435 an on ounce on Monday, the metal's highest level since August 1988, after the dollar fell to a record low against the euro. Profit-taking has erased some of the gains, but dealers said the rally may not be over.
Spot gold was quoted at $433.10/$433.85 at 0601 GMT. Dealers said gold had likely only paused before an expected move toward near-term resistance of $440, aided by a weak dollar.
"High prices have spoiled the peak season," said Prithvi Raj Kothari, a Bombay-based dealer.
Traders said gold buying would further fall after Diwali, the festival of lights that will be celebrated on Friday, and would come to a standstill after two weeks if prices remained firm.
"Whatever sales are taking place now, that is because of Diwali. People will postpone their purchases after that if prices continue to be at the current level," Rathod said.
Gold demand in India rises during the festive season because many people consider gold an auspicious metal and like to buy or give it as a gift for religious festivals. Domestic prices follow global trends because the country imports on average of more than a tonne a day to meet nearly two-thirds of its annual gold needs of about 600 tonnes.
"The price volatility is hitting us. Prices should stabilise at some level," said Girish Choksi, a dealer in the western city of Ahmedabad, a leading bullion and textiles trading centre.
Indian households and temples stock about 15,000 tonnes of gold accumulated over generations. The country has some 300,000 jewellery outlets and 3 million goldsmiths and ancillary workers.
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