Gold fell more than 2.5 percent on Wednesday to its lowest level in over a month and silver fell more than 4 percent, in tandem with declines in overseas markets, although supplies were not enough in the physical market to meet rising demand.
The actively traded gold for August delivery on the Multi Commodity Exchange (MCX) was 2.36 percent lower at 25,931 rupees per 10 grams, after hitting a low of 25,758 rupees, a level last seen on May 20.
Global gold fell to its lowest in nearly three years, pressured by strong U.S. economic data that boosted stock markets and supported the U.S. Federal Reserve's plan to scale back monetary easing in the next few months.
A weaker rupee, however, kept the downside limited. The rupee plays an important role in determining the landed cost of the dollar-quoted yellow metal.
"We are unable to give supplies though there is demand we give deliveries after 2-3 days," said Harshad Ajmera, proprietor of wholesaler JJ Gold House in Kolkata.
Most of the supplies are met by state trading houses and state-run agencies such as MMTC, STC and PEC through their imports in April and early May as banks are awaiting guidelines from the central bank on outright purchases.
India imposed a ban on consignment imports in May, but has ruled out a blanket ban on gold imports or any increase in customs duty from the current 8 percent. On Friday, Reliance abruptly halted gold sales and investments in its gold-backed funds.
Gold imports into India fell from an average of $135 million per day in the first half of May to $36 million in the second half, Finance Minister P. Chidambaram said on June 13.
Silver for July delivery on the MCX was 3.4 percent lower at 39,265 rupees per kilogram.