India gold down, but not enough for buyers

MUMBAI (Reuters) - India's gold prices fell on Wednesday even though foreign markets were higher as a stronger rupee eased prices locally, but buyers stayed on the sidelines awaiting bigger falls, dealers said.

"The recycled gold coming into the market is very high," said a dealer at a large private bank in Mumbai. "That has to stop and prices have to stabilise for demand to pick up again."

Foreign gold, that guides the local market, gained as much as 1.5 percent with the continuing financial market turmoil in the U.S. keeping buyers drawn to the safe haven appeal of the yellow metal.

In the local market, the rupee strengthened with state-run banks selling dollars, which softened gold prices as most of India's gold is imported and paid for in the U.S. currency.

Local traders sold gold at a discount of about 150 rupees per 10 grams over the bank rate after stocks piled up as investors sold gold bars and jewellery to book profits, said Vipin Sharma, dealer in MD Overseas Ltd, a New Delhi-based trading company.

However, Jitendra Kantilal of Jugraj Kantilal & Co, a large Mumbai trader who mainly buys old gold, said the rush of sellers had paused hoping that prices would climb further.

"Sellers feel prices will rise and buyers are waiting for prices to fall to around 12,500 rupees," Kantilal said.