NEW DELHI--The rupee's historic lows against the U.S. dollar have sent domestic gold prices to record highs despite weak demand, a combination that has resulted in aggressive selling at discounts to international spot prices.
"Investors who bought sometime back are selling their gold, even at a discount of $15 an ounce from international rates," said Prithviraj Kothari, president of Bombay Bullion Association.
International gold prices have risen in recent weeks due to expectations of further monetary easing by the world's central banks in response to slowing national and regional economies.
The price in India hit a record high Wednesday of 30,295 rupees for 10 grams and was around 30,250 rupees/10 grams as of 0842 GMT. Prices in India have remained high largely because of a sharp decline in the rupee's value to the U.S. dollar, which last week touched a record high of 56.51 against the rupee.
International spot gold was around $1,633 a troy ounce at 0842 GMT, up from a 2012 low of $1,527.24 an ounce May 16.
The discount to international prices in the domestic market has prompted bullion dealers to stop taking deliveries of gold imports, traders and dealers said.
Mr. Kothari said he expected India's gold imports in June to be less than half of the 55-60 metric tons imported during the same month a year ago.
India imports almost all of its gold. It was the world's top gold consumer until the first quarter of this year, when it was overtaken by China.
"There is a huge liquidity crisis in the bullion market," said Kishore Narne, senior vice president at Anand Rathi Commodities. He said jewelers are keeping smaller inventories of gold because they don't have enough cash due to low demand.
Traders said the liquidity crisis indicated that other sectors of the economy faced similar constraints because Indian consumers tend to invest their surplus cash in gold.
"I have around 300-400 kilos of gold and 20 tons of silver lying with banks," said Vasu Acharya, director at Parker Bullion. "How do we sell when prices are quoting at a $10 discount to market rates?"
Mr. Acharya said he expected sales this month to total only around 20% of those in June 2011.
