Jewellers sold huge quantities of precious ornaments at a premium of up to 50%.
Many also rushed to convert their banknotes into gold.
Dilip Kumar Jha reports from Mumbai.
After bumper sales in the wake of the government's demonetisation of high-value notes, jewellery retailers' business was halted on Friday due to non-availability of gold.
Since the demonetisation on Tuesday evening, jewellers in many parts of India sold huge quantities of precious ornaments at a premium of up to 50 per cent.
Many also rushed to convert their banknotes into gold.
Jewellers are yet to book new gold to build their inventory; they would rather wait till the dust of demonetisation settles.
They've started bookings from trustworthy customers for delivery in two-three days, but want cheques; cash transactions have stopped.
"Gold available in the system before the announcement of demonetisation has been sold out. Jewellers are deferring fresh purchases because of uncertainty over the next government move to control black money. It is, therefore, better to wait for now," said Prithviraj Kothari, managing director, RiddiSiddhi Bullions.
Jewellery sales also came to a halt due to the liquidity crisis among consumers, barring a handful with immediate need.
As a consequence, standard gold prices have dipped over three days, closing at Rs 30,365 per 10g on Friday after a high of Rs 31,145 per 10g on Wednesday.
It also fell 0.6 per cent in spot sales, following a similar move in markets abroad. Spot gold in London declined by $3.5 to trade at $1,257.75 an oz on Friday.
Silver closed with a marginal decline to $18.63 an oz. Silver at Zaveri Bazaar in Mumbai, however, moved up by Rs 200 to close on Friday at Rs 45,420 a kg.
"While customers remained absent from fresh purchases, gold has vanished from the system," said Kumar Jain, director, Umedmal Tilokchand Zaveri, a bullion dealer and jewellery retailer here.
"Card and cheque payments are accepted, but physical demand remained absent," said Surendra Mehta, secretary, India Bullion and Jewellers Association.
Both jewellers and consumers are scared after income tax raids on jewellers and money exchangers across the country on Thursday.
Sreedhar G V, chairman of the All India Gems and Jewellery Trade Federation, said: "We were expecting a bumper sale during the ensuing wedding season, but with the demonetisation, the entire sentiment is reversed. The jewellery business is likely to remain lacklustre."
Photograph: Shailesh Andrade/Reuters
