Sanjeev Srivastava BBC correspondent in Bombay

India, the world's largest consumer of gold, has cut imports of the precious metal by nearly half because of the sharp rise in global prices in recent months.

Indians love the yellow metal and it is associated with just about every social event from marriage, engagement and child births to birthdays.

Local consumption was enough to take care of the domestic demand therefore the imports had come to a virtual standstill

Mukul Sonawala Bombay Bullion Exchange

But with gold prices running at a five-year high, demand has taken a hit.

"Business is a little bit slow right now, maybe because prices are a bit higher," said Deepak Jhaveri, a jewellery retailer.

"People are exchanging their jewellery rather than buying with cash and they are coming to buy only what's absolutely necessary, maybe for a wedding or a gift, not like normal times when they would walk in and just buy jewellery."

World gold prices have risen almost 15% this year as investors choose to bank on the precious metal because of continuing weakness in the US economy and the slide in global equity markets.

The peak demand for gold is the wedding season, which runs from December to May, but this year sales fell by about 40%.

Old gold

Gold traders in the country are now buying more locally recycled gold as the price gap with imported gold widens.

Recycled gold is about $20 cheaper per 116 gram bar than the imported metal.

Sale of old jewellery has more than doubled in many Indian cities in recent weeks as consumers take advantage of the high price of the yellow metal.

Most of the gold jewellery is sent to refineries for melting and recycling.

Industry tarnished

The fall in gold imports and the decrease in gold consumption is causing concern in the industry.

Indians buy nearly 20% of the world's gold output every year.

The World Gold Council (WGC) thinks volatility in gold prices is hurting the industry.

"I think a combination of prices going up and the volatility is really resulting in this wait-and-watch attitude and people are exchanging old gold jewellery for new gold jewellery," said jewellery manager of the WGC in India, Hiroo Mirchandani.

India is a highly price sensitive market and Indians are expected to start selling even more aggressively if the price of gold goes up any further.