Gold demand is likely to pick up within a week as prices of the yellow metal are expected to stabilise at Rs 4,600-4,700 per 10 gram within the period. However, the total rise in demand is expected to be around two-three per cent, traders said.

“Gold prices are likely to stabilise at Rs 4,600-4,700 per 10 gram as soon as the war situation becomes clear. People will purchase jewellery because of the coming festival season and, therefore, demand for the metal is likely to go up by two-three per cent during October-December,” Mukul S Sonawala, president of the Bombay Bullion Association (BBA) told Business Standard.

Currently, the price of the yellow metal has risen by Rs 50 and it is likely to maintain this level temporarily, he added. A bullion analyst said: "The global gold bullion market is quite volatile now. If the United States launches an attack, prices could test the $300 (per troy ounce) level and even nudge up to $320." Gold prices have remained volatile after the September 11 attacks on the United States due to fears of a reprisal by the US. Investors have been seeking gold as a safe haven.

Sonawala added that another reason for gold demand to be currently low in India was the extra month (Adhak Mas). “The Adhak Mas is not considered a very auspicious time to purchase jewellery and, therefore, consumers are deferring their purchases,” he stated.

Traders added that lower demand due to high prices had also led to a drop in imports.

"Everyone is waiting for prices to ease. Though festivals are approaching fast, consumers would be wary of lapping up gold jewellery at current prices," said a New Delhi-based jeweller. Demand for gold jewellery, which determines the level of gold imports into India, could rise if prices stabilised at the current levels for a few weeks, he added. "Consumers are yet to digest the price levels. If the prices hold on to current levels for two-three weeks, then demand could look up, though marginally," Rajiv Jain, a dealer said.

India's gold demand is pegged at 855 tonne annually. While official imports account for about 535 tonne, the rest of the supplies come from illegal channels and the country's huge household and religious institutional reserves, estimated at 10,000 tonne. The demand for gold has gone up by 10 per cent to 450-500 tonne during January-August.