India's love affair with gold is waning as high prices deter casual buyers in the world's largest gold importer and savvy housewives try to sell their spare jewellery to capitalise on rocketing prices.

As gold, which traditionally is viewed as a safe haven in uncertain times, hovered close to record highs yesterday, Suresh Hundia, head of the Bombay Bullion Association (BBA), said that Indian consumers were deferring all but the most essential purchases. “Households are selling spare gold. There is zero demand at these prices in India,” he said.

Gold hit a record $923.40 (£465) an ounce in New York last week, as investors hurt by tumbling share prices put their money in the yellow metal. Prices have also been buoyed by power outages in South Africa, which have hurt production in goldmines there.

In India's bazaars, prices have surged past 10,000 rupees (£128) per 10g, a key level for retail buyers. Yesterday, gold for February delivery was being quoted at 11,615 rupees per 10g on the Multi Commodity Exchange of India. According to the BBA, which tracks market activity, sellers of scrap gold in India are cashing in at prices only about 3 per cent below those quoted in the trading pits of London and New York.

About three quarters of the 800 to 900 tonnes of gold estimated to have been imported into India last year was used for jewellery.

In Zaveri Bazaar, the chaotic, glistening hub of Bombay's gold trade, vendors complained that recent record stock market falls had made customers wary. Thousands of middle-class Indian investors - key gold buyers - are nursing losses after the Bombay bourse was hit by volatility in global share markets last week.

Many still buy gold jewellery for weddings, where golden gifts are considered especially auspicious. “An occasion such as a wedding leaves one with no option but to buy, but casual buyers will wait before picking up a bangle,” Monesh Belel, of Tribhovandas Bhimji Zaveri, one of India's largest jewellery chains, said.

Overall, Indian demand has plummeted as much as 80 per cent this month against the same period a year ago, according to the BBA.

In October, the Diwali festival, a big gold-selling event, delivered what the World Gold Council described as poor sales. Nevertheless, analysts - and Bombay's jewellers - widely predict that gold prices will remain firm, even spiking above $1,000 an ounce as gold remains a safe haven for investors.

James Turk, of the Freemarket Gold & Money Report, said: “Anything can happen from here, including a rocket shot to $1,000 over the next few weeks, which I consider to be a very good probability.

“We already have lift-off ... When people become fearful about national currency because of inflation, bank problems, counter-party risk, they increasingly turn to gold."

The US Federal Reserve meets tomorrow to decide its next move on interest rates, having cut rates by three quarters of a percentage point last week. A further rate cut in the United States could drag the dollar down and support the price of gold, which is priced in the US currency on the world market.

Recent market turbulence also makes it likely that the Indian central bank will cut rates at its meeting tomorrow, economists said.

On the rise

— Gold and platinum hit record highs as the threat of power blackouts forced mining companies in South Africa to continue their production shutdown

— Gold reached $921.75 per ounce at the afternoon price fix in London, while platinum reached a high of $1,697 per ounce

— The price of non-precious metals fell amid fears that a global recession this year will reduce demand

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