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MUMBAI (Reuters) - Gold premiums in India, the world's biggest buyer of the precious metal, hit a record $100 an ounce, about 8 percent over London prices, on a shortage of supplies to meet festival demand, traders said on Tuesday.
Banks, the primary dealers of bullion, are currently importing the yellow metal chiefly for exporters, as under the so-called 80/20 principle, jewellery exporters get priority for supplies over domestic manufacturers.
The principle, part of a package of measures announced in July aimed at cutting India's current account deficit by reducing gold imports, states that 20 percent of all gold imported into India must be re-exported.
"There are no supplies in the domestic market, and there is a little demand due to festivals... what little supplies that come, go to exporters," Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation (GJF) told Reuters.
Most suppliers in Mumbai and Kolkata have started quoting premiums in excess of $100 an ounce above London prices, more than double the $40 charged last week, Bamalwa said.
Due to the additional premiums, quoted gold prices in India are 8 percent higher than the current spot price of $1,261 an ounce.
Gold imports have virtually dried up in India after the federal government introduced the 80/20 rule, creating confusion among government officials on its implementation and halting shipments for about two months.
Following government clarifications, banks have begun to process fresh orders, but the rule will still inhibit imports.
One official at a private bullion importing bank in Mumbai, who did not wish to be named, said any stocks that they received were going to exporters. "Only after that, domestic (supplies) could start," he said.
The festival season has started in India and will peak with Dhanteras, an auspicious day for buying gold, in November, while the wedding season will continue till December.
"Our work has virtually stopped now... there is a premium of 7 percent on global prices. We are helpless to buy at such high prices," said Harshad Ajmera, proprietor of JJ Gold House, a wholesaler in Kolkata.
The World Gold Council has said India's gold demand could rise as much as 15 percent this quarter to 300 tonnes as pent-up demand following a good monsoon keeps the country on track for yearly demand estimated at 1,000 tonnes.
"For upcoming Dhanteras, if the industry is not getting raw material, we will face a major problem," said Haresh Soni, chairman of GJF. (Editing by Jan Harvey and James Jukwey)