Indian gold sales peak in the run-up to the Diwali festival

Traders in Madras, also known as Chennai, told the Reuters news agency that sales were down by about a third from their normal daily average.

The decline comes as gold hovers close to a 16-year high of $436.60 an ounce, fuelled partly by geopolitical worries.

Diwali, which falls on 12 November this year, usually sees gold sales peak.

Buying spree

During the festival, millions of Hindus commonly exchange gifts of gold jewellery, helping to make India the world's biggest consumer of the yellow metal.

India imports about two thirds of the 600 tonnes of gold it consumes every year during the run-up to Diwali.

But traders say many consumers have decided to buy alternative gifts this year, deterred by the high price of gold.

"High prices have spoiled the peak season," Mumbai-based dealer Prithvi Raj Kothari told Reuters.

The price of gold has risen by more than 10% in the past two months, as investors worried over political instability in the Middle East seek a safe haven.

The dollar-denominated gold price has also been lifted by a recent decline in the value of the greenback against other currencies.

Diwali also triggers a seasonal peak in a range of agricultural commodity prices, including cooking oil.