Indians bought a third less gold than last year during the annual Hindu and Jain holy festival of Akshaya Tritiya on Monday, industry officials estimate, as droughts have hit the earnings of millions of farmers and the metal's price rallied.
Weaker demand from the world's second-biggest consumer could limit a rally in global prices, which are up around a fifth this year. Indian prices were around 30,000 rupees per 10 grams on Monday, up nearly 10 per cent from a year ago.
Akshaya Tritiya is the second-biggest gold-buying festival in India after Dhanteras around October-November, but jewellers failed to draw buyers despite spending heavily on print and television advertisements and offering discounts on design fees.
"Compared to last year demand is nearly 35 per cent lower," said Kumar Jain, vice-president of the Mumbai Jewellers Association, who was hoping for sales to pick up after several jewellers reopened recently after a weeks-long strike.
"Higher price is the key deterrent. We thought pent-up demand would drive sales, but demand is quite weak."
Somasundaram PR, head of the World Gold Council's Indian operations, said that through aggressive advertising jewellers had been trying to build sales momentum, which was lost due to the strike earlier this year.
Gold buying is also down because of the plight of farmers hit by extremely dry weather, according to Mangesh Devi, a jeweller from the rural town of Satara in the western state of Maharashtra.
Mumbai resident Mangesh Chawan said he had cut purchases by half this year.
"I wanted to completely avoid purchases but later decided to buy a small amount as every year we buy something," Chawan said after buying gold earrings for his wife.