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VANGAL (Reuters) - Kiran Laxman Salunkhe used to buy jewellery during religious festivals, but sliding gold prices have led the young farmer to break with his family's traditional investment.
This year Salunkhe has deposited his hard-earned savings at the bank for the first time in a decade and bought farmland.
"I bought jewellery when gold price was 32,000 rupees (per 10 grams) last year. Now jewellers won't pay me more than 27,000 rupees if I want to sell. Why should I invest in gold," said Salunkhe, who farms 15 acres of sugar cane in Vangal, a village 250 km (160 miles) south of Mumbai.
"Nowadays it is risky to keep jewellery. Burglaries are rising," he said. "With a fixed deposit there is no risk."
A one-quarter drop in local gold prices over the past year has shaken the confidence of Indians in the precious metal as a store of value and dented demand in the world's second-biggest buyer.
The main beneficiary has been stocks, which have been clocking up records on hopes that Prime Minister Narendra Modi can deliver on the promise of "better days" ahead that swept him to power in May's general election.
Beyond short-term sentiment, a major push by Modi for every household to get a bank account, better education and living standards, and falling inflation expectations, could herald a more secular change in investing habits.
"The attachment of Indians to gold will remain," said Harish Galipelli, head of commodities and currencies at Inditrade Derivatives and Commodities Ltd., referring to gold's culturally embedded role in dowry gifts or decorating Hindu temples.
"But as the banking network expands and literacy rises, people in rural areas will explore other investment products like mutual funds or bank deposits. The mindset is slowly changing."
If the national obsession with gold does fade that would help curb India's external deficits - gold is the second biggest item on the import bill after oil - and cap world gold prices that are trading sideways in 2014.
If the crowds selling scrap gold to Kapil Parekh at his shop in Mumbai's Zaveri Bazaar are anything to go by, the shift by small-time speculators out of gold is continuing unabated.
"Many investors who came after 2008's stock market crash were short-term investors," said Parekh.
"They came when the stock market wasn't giving returns. Now, since shares are rallying, they are liquidating gold and going back to equities. They may come back."
One customer, Dinesh Jain, said he had sold 64 grams of gold bought since 2011 and was investing the proceeds - now worth nearly $3,000 - in information technology stocks.
India's investment demand for gold slumped by 67 percent in the June quarter from a year ago to 49.6 tonnes, World Gold Council (WGC) data showed. Based on industry and WGC estimates, investment demand could nearly halve to 190 tonnes this year.
Investment demand was 37 percent of total 2013 gold sales.
Indian gold exchange-traded funds, a financial product that sophisticated investors use to gain exposure to the metal, have suffered 15 straight months of outflows.
In contrast, turnover on Mumbai's main NSE bourse is up by 61 percent, while $50 billion has flowed into mutual funds in the financial year starting April 1 - up sixfold from the entire previous year.
Term deposits in banks have also risen but by a more modest $3.6 billion since April, compared to a drop of $2.9 billion last year, central bank figures show.
A decade-long surge in gold prices to 2013 led investment buying of bars and coins to quadruple. Over the same time, sales of traditionally more popular jewellery rose by just a quarter.
But since hitting a record high of 35,074 rupees per 10 grams in August 2013, local gold prices have fallen steadily, tracking weakness in overseas prices and a strengthening rupee.
In the past, such price falls would have attracted bargain hunters. Not now.
"The 11-year rally in gold prices created a perception that they will only go up. This price fall has broken that conviction," Prithviraj Kothari, vice president of the India Bullion & Jewellers' Association, told Reuters.
"Now people are diversifying their investments. This trend will increase in the coming years," added Kothari, cautioning that expectations of a tightening in super-loose U.S. monetary policy would weigh on gold.
"During uncertainly people chase gold. Now, since we have stability, economic growth will revive. It will ultimately push up the stock market and real estate prices."
But for some India's love affair with gold will endure.
"Last year, despite a premium of over $100 (per ounce over London prices), buyers were crowding my counter," said a Mumbai-based dealer at a state-run bank.
"Now, the premium is just $5. The peak festive season is ahead. But I am waiting for customers. There is no hysteria."
Writing by Rajendra Jadhav; Additional reporting by Suvashree Chaudhury; Editing by Douglas Busvine and Michael Perry