Mumbai: Gold demand in India, the world's biggest buyer of the metal, remained lukewarm on Wednesday as a drop in the rupee lifted local prices by more than one percent amid restrictions by the central bank on gold imports.
The RBI has banned banks and state-run and private trading agencies from importing gold on a consignment or payment of margin basis, making it difficult for small jewellers to source supplies on cash payment. The government also raised import duty on the metal to 8 percent.
"In rural India, farmers are busy with the sowing of summer-sown crops due to good rainfall in the last two-three weeks," said a member of Bombay Bullion Association. Rural India accounts for more-than half of the total gold consumption.
"There is no investment demand as people feel prices will fall further from the current level. Jewellery demand was also negligible," the member said.
At 4.46 p.m., the actively traded gold for August delivery on the Multi Commodity Exchange (MCX) was 1.35 percent higher at 26,258 rupees per 10 grams, after rising to 26,299 rupees earlier in the day.
Silver for July delivery on the MCX was 1.30 percent higher at 40,400 rupees per kg.
The rupee fell one percent on Wednesday, heading for a third consecutive session of falls, on concerns foreign investors would continue to exit domestic markets and add to concerns about the country's record current account deficit.
A weak rupee makes gold imports expensive for India, which relies on overseas purchases to fulfil almost its entire demand.