Gold demand in India, the world's biggest consumer, dried up on Monday after prices spilled past 28,000 rupees per 10 grams, tailing a rally overseas and on the Indian rupee's weakness.
At 2:03 pm, October contract on the Multi Commodity Exchange was 0.45% up at 28,080 rupees per 10 grams, after hitting a record high of 28,244 rupees earlier in the day. It has risen over 19% in August thus far.
International spot gold surged more than 1% to a third consecutive all-time high on Monday, as investors fled to the safety of bullion amid fears of another US recession and the euro zone's debt crisis.
Spot gold struck a record at $1,894.1 an ounce, after staging its biggest weekly gain in 2-1/2 years last week.
The rupee plays an important role in determining the landed cost of the yellow metal, which is quoted in dollars.
Indian rupee weakened in early trades on Monday to levels not seen in nearly nine months due to bunched-up dollar outflows following a local forex market holiday on Friday.
"Demand is not very encouraging. Prices are rising every day. People are waiting for prices to stabilise. Once prices stabilise, even at higher level, we can see improvement in demand," said a Mumbai-based dealer with a private bank that deals in bullion.
"Year-on-year basis, demand is very weak," he said.
Gold buyers in India are investing in it on expectations prices may rise, but imports are likely to fall as limited budgets buy less gold, the Asia head of India's biggest importing bank Scotia Mocatta told Reuters on Saturday.
Gold imports by state-run MMTC, the largest importer in the country, in August thus far reduced by an eighth to 5 tonnes, a top company official told Reuters on Thursday. This has also prompted the company to cut its FY12 import estimate.
A Reuters poll of 12 importing banks and traders showed the country's gold imports are likely to ease to 825 tonnes in 2011, down 12% from last year's record of 958 tonnes.