India is cracking down on speculators buying gold on borrowed money in an effort to control imports of the precious metal into the country.
The central bank has banned banks from lending money to customers to buy gold, while further measures are expected to be taken to reduce imports.
"The significant rise in imports of gold in recent years is a cause for concern as direct bank financing for purchase of gold in any form … could lead to fuelling of demand for gold, for speculative purposes," said the Reserve Bank of India (RBI).
"Accordingly, it is advised that no advances should be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds."
Imports of gold reached 223.1 tonnes in the third quarter of this year, up 9 per cent from a year earlier, according to the World Gold Council. The growth also accounted for 30 per cent of global consumer demand for gold as well as bucking the global trend of an 11 per cent decline in demand during the quarter.
Rising gold imports have worsened India's current account deficit in recent years.
"Jewellery increased due to restocking ahead of the Indian wedding and festival season," said the World Gold Council. This followed weak demand in the first half of the year, it added. "Indians appear to have acclimatised to recent price trends and have been buying into a rising market".
Jewellery demand was up 7 per cent to 136.1 tonnes, while investment demand increased 12 per cent to 87 tonnes in the third quarter of the year compared with the same period last year. The country was the world's biggest consumer of gold last year.
Analysts said the move by the RBI was unlikely to have a huge impact on the market.
"If it's your own money, there's no restriction," said Bhargava Vaidya at BN Vaidya & Associates. "It's a way to reduce speculative purchases, which in most of the countries is not encouraged. That will not affect business except some speculation on the exchange market and some speculative buying. If someone does speculative buying with their own money, the RBI does not have an issue."
The central bank said that "banks can provide finance for genuine working capital requirements of jewellers".
Jewellers said they believed they would not be affected by the rules. "There are no side effects," said Lalit Jain, the owner of Surana Gold in Mumbai. "This is a cash business. All the customers who buy from us have money."
Despite the positive trend reported by the World Gold Council for July to September, some jewellers in India have said that demand during the festival season this month - including the Diwali festival, a popular time to buy gold - has been dampened by the weak rupee, which pushes the price of gold higher in local currency terms.
"The growth in the third quarter demand was not sufficient to overcome the weakness experienced in India during the first half," said the World Gold Council.
"On a year-to-date basis overall consumer demand was 24 per cent weaker relative to the same period in 2011. It is unlikely that demand will recover sufficiently to result in a gain for the year as a whole."