Gold demand in India, the world?s largest bullion buyer, will be strong in the October-December quarter, a traditional time for festivals and weddings, despite high inflation that eats into savings and multiple growth-choking central bank rate hikes.

?We think that demand from India will be resilient to higher gold prices for the remainder of the year on the back of seasonality and increased investment interest,? said Edel Tully, strategist of UBS.

Global gold prices have risen more than 20% so far in the year, and are expected to gain further, as dwindling appetite for risk prompts investors to rush to safe havens such as gold.

In India, gold prices have gained 29% since the start of the year, compared with just 15% gains in the stock market.

Indian gold imports rose 47% to 265 tonne in the last quarter of 2010, continuing a strong trend to end at a little over 950 tonne last year.

Indian demand is expected to peak by the end of the month when the festivals of Dhanteras and Diwali are celebrated. The wedding season lasts a couple of months more.

Demand for gold bars, coins and other pure investments in India, Asia?s third-largest economy, soared 83% in 2010 from the year earlier to 349 tonne, according to GFMS, a precious metals consultancy that is part of Thomson Reuters.

Gold used for jewellery rose 36% to 685 tonne in 2010. Investment demand accounted for 34% of total buying, up from 28% in 2009.

Such demand has not been dented by stubbornly high inflation, hovering around double digits for over a year, prompting the central bank to raise interest rates a dozen times in the past 18 months. Its key rate stands at 8.25%.

?My sense is that demand will be 30-40% higher than the fourth quarter of 2010. Investment demand is already on a peak,? said Gnanasekar Thiagarajan, director with Mumbai-based research firm Commtrendz. So, I suspect unless some major geo-political crisis starts investment demand will peter out in the fourth quarter.

Continued appetite from India is also likely to provide underlying support to global gold prices, which entered into an eleventh year of gains.

?Gold demand will be very decent. The price has come off noticeably, restoring its buying value. I think Indian demand will give the gold price modest upward momentum but not exclude others in Asia from buying,? said David Thurtell, an analyst at Citigroup.

Importers and traders said the focus will remain on gold investments, though need-based jewellery buying could take place due to thousands of weddings that take place every year.

Jewellery forms a major part of the dowry basket, which parents give the bride for financial security.

Spot gold was higher at $1,674.09 an ounce on Tuesday, easing from a three-week high of $1,694.60 hit in the previous session. Prices are still down more than 12.5% from the record of $1,920.30 struck in early September.

Both gold and silver fell in the bullion market here today despite the festive season, due to sluggish demand at existing higher levels amid a weakening trend in Asia.

While gold fell by R200 to R26,990 per 10 gm, silver moved down R1,000 to R52,800 per kg on reduced offtake at prevailing high levels.

The decline in gold prices in Asia further dampened the trading sentiment, traders said.

In Singapore, gold shed 0.5% to $1,662.07 an ounce after reports showed that China?s economy grew at the slowest pace in two years and Germany said European Union leaders might fail to provide a fast resolution to the region?s debt crisis.

Silver also dropped by 1% to $31.50 an ounce in Singapore.On the domestic front, gold of 99.9 and 99.5% purity fell by R200 each to R26,990 and R 26,850 per 10 gm, respectively.

Sovereigns followed suit and shed R50 to R22,000 per piece of 8 gm. Likewise, silver ready fell by R1,000 to R52,800 per kg and weekly-based delivery by R950 to R52,350 per kg.

Silver coins tumbled by R2,000 to R60,000 for buying and R61,000 for selling of 100 pieces. ?Physical demand from India plays a supportive role in the gold market, but is unlikely to single-handedly push prices above $1,700. In the event we see prices fall to $1,500s, physical demand could cushion the downside,? said Ong Yi Ling, an analyst at Phillip Futures in Singapore. It is investment demand that propels prices higher.