In value terms, the country's gold imports in the month fell 62%, the source said.

Gold imports plunged 73 per cent in August from a year ago to the lowest level in three years as a rally in local prices to a record high and a hike in import duty discouraged retail buying, a government source said on Wednesday.

Lower imports by the world's second biggest consumer could cap gains in global prices that are trading near six-year highs, but would help the south Asian country bring down its trade deficit and support the rupee.

India imported 30 tonnes of gold in August, down from 111.47 tonnes a year ago, said the source, who asked not be named as he was not authorised to speak to media. In value terms, August's imports fell 62 per cent to $1.37 billion, the lowest since August 2016.

On Wednesday, local gold futures hit an all-time high of 39,770 Indian rupees ($556.29) per 10 grams, taking their gains to more than 26 per cent in 2019.

Retail demand has been subdued for the past few weeks due to the price rise, said Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji.

"A few consumers are selling gold. Scrap supplies have risen substantially," he said.

Gold demand is likely to soften in the September quarter as record high local prices curtails buying, the World Gold Council said last month.

In August, dealers were offering a discount of up to $37 an ounce from official domestic prices, the biggest since August 2016. The domestic price includes a 12.5 per cent import tax and 3 per cent sales tax.

"Legal imports are falling due to smuggling. The price rise and duty hike has been increasing smuggling," said a Mumbai-based dealer with a bullion importing bank.

New Delhi raised an import tax on gold by 2.5 percentage points to 12.5 per cent in July's federal budget, effectively increasing smugglers' margins.

Indian customs officials seized 1,197.7 kg of smuggled gold in the April-June quarter, up 23 per cent from a year ago, a government official said on Monday.

India's gold imports in September could be less than 35 tonnes, down from last year's 81.71 tonnes, the dealer said.