MUMBAI -- As spot gold prices in the local market surge to record highs, Indians are flocking to jewelry shops to sell old jewelry in the middle of the busy wedding season, when purchases usually pick up, and imports are slowing sharply.
Pure gold in the spot markets of Mumbai, the largest bullion market in the country and a benchmark for prices in other local markets, rose to 14,770 rupees ($304) per 10 grams Thursday, up from the previous high of 14,265 rupees/10 grams early in the week.
Standard gold was quoted at 14,705 rupees/10 grams, up from a previous high of 14,200rupees/10 grams.
"About 90% of people are only coming to us to sell old jewelry," said Suresh Hundia, president of the Bombay Bullion Association. "So far in the month of February, there have been no imports of gold due to the record high prices."
The peak Indian marriage season runs from October to March. Indian prices are marginally higher than the international spot gold price of around $940.75 an ounce because of the rupee's weakness against the dollar.
India, the world's largest buyer, imports more than 90% of its annual gold demand of 700 to 800 tons.
With spot gold prices in domestic markets expected to rise further in the next couple of months due to firm investment demand in global markets, imports of gold are likely to be reduced to a trickle, traders said.
"When they (traders) can get it cheaper in domestic markets, why would they import at higher rates," Mr. Hundia said, referring to the slightly discounted price offered to sellers of old gold.
"Around 90% of the jewelers are not purchasing gold from banks as consumers are selling their old jewelry and asking jewelers to remold it, instead of buying new gold," said Pravin Mehta, president of the Madras Jewellers and Diamond Merchants Association.
Gold imports in India fell to between one and two metric tons in January, from 18 tons in the same month last year, according to Bombay Bullion Association data.
"Spot prices are likely to surge further to 16,000 rupees/10 grams in the next two months as economic concerns persist globally," said Ashwin Zaveri, a trader based in the country's largest bullion market of Zaveri Bazar in Mumbai.
A year ago spot prices of pure and standard gold were at 11,735 rupees/10 grams and 11,685 rupees/10 grams, respectively.
Mr. Hundia expects prices to correct a little before rising again to around 15,200 rupees/10 grams by March, tracking global prices.
However, Bhargava Vaidhya, a director with Vaidhya & Associates, said the current rally is unlikely to be sustained for long as demand has totally dried up and the Indian rupee looks set to strengthen against the U.S. dollar