Gold buyers in India, the world's largest consumer of the yellow metal, are investing in it on expectations prices may rise, but imports are likely to fall as limited budgets buy less gold, the head of India's biggest importing bank told Reuters on Saturday.

They are buying, we talk to jewellers, and they are saying demand is very high. People are planning their wedding purchases in advance because they feel that prices may go to 30,000 (rupees). they are using that to buy, said Sunil Kashyap, head of Asia, Scotia Mocatta.

Gold prices have gained more than 25 percent so far in the year to peak at 27,989 rupees per 10 grams on Saturday, continuing its rising trend for eight years in a row.

India's wedding and festival demand will gain pace and peak in October before tapering off in December.

People are spending the same, but the amount of gold that they are getting is less, said Kashyap, adding there could a 20 percent decline in imports this year.

India imported 958 tonnes of the yellow metal in 2010.

Scotia is market leader, cornering about 35 percent of India's imports and operates in collaboration with wholesalers across the country.

The perception right now is gold prices are going higher and because of that people are buying. If price keeps on going and filling that expectation you are going to see continuous demand, said Kashyap in the southern state of Kerala.

However, the risk to continued demand, Scotia said, was If there is a correction, people may just step aside.

Jewelry demand is likely to witness a revival after a slow pace of growth in the quarter to June. Investment demand grew by a whopping 78 percent to 108.5 tonnes, while jewelry demand slowed by 17 percent to 139.5 tonnes in the second quarter.

People are buying jewelry as investment, there was a lot of new buyers who were not buying jewelry but buying gold bars and coins, but just in the south people are buying jewelry, so this year we may see some revival in jewelry demand, he said.

CORRECTION KILLS INTEREST IN SILVER

Kashyap said silver imports had shrunk after spectacular sales in the first-half to June, adding prices were likely to fall by 18.5 percent from current levels to $35 an ounce, driven by a slowdown in industrial demand.

There is a definite resistance to silver. Once it crossed 50,000 rupees and then went to 60,000 rupees, a lot of people got stuck with positions, and the correction from 60,000 rupees killed many people's interest, so there is now less interest as it is considered as a two-way metal, said Kashyap. Gold has just moved in one direction.

Silver prices have corrected 32 percent after peaking to 73,600 rupees in late April.

We had a very strong spurt (in imports) in the first half itself. I would suspect 3,500-4,000 tonnes (of imports in 2011) on low base effect, said Kashyap. India imported about 2,800 tonnes of the white metal last year.

The fact silver demand is inelastic to price, but here demand itself will not be coming down due to slowdown, he said.

Kashyap feels there is lack of a clear laid out policy in India to boost avenues available to retail gold investors. Conversely, China has allowed a plethora of retail investment products to boost investments such as in the form of gold deposits, certificates and gold accumulation plans.

The banks here in India have already made representations to the regulator but they have not received any response, he said.

(Editing by James Jukwey)

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