MUMBAI - India's gold demand could fall 10% in 2019 from a year ago to the lowest level in three years as record high local prices dent retail purchases during a key festive season, the head of an industry body told Reuters.

Lower purchases by India, the world's second biggest consumer after China, could limit a rally in global prices that hit a six-year high earlier this week.

"Of late, customers are not used to such a jump in prices," Anantha Padmanabhan, chairman of the All India Gem and Jewellery Domestic Council (GJC) told Reuters by telephone.

"They will not raise allocations to buy gold just because prices have risen. Volume-wise demand will drop 10% from last year."

Local gold prices hit a record 35 960 rupees ($519) per 10 grams on Tuesday, having jumped more than 10% over the past month, rising in line with international prices on tensions in the Middle East.

India's gold consumption dipped 1.5% in 2018 to 760.4 t, below a 10-year average of 838 t, according to data compiled by the World Gold Council.

The council in May forecast consumption this year at 750 t to 850 t after demand rose 5% in the March quarter. But the sudden price rise has affected sentiment, jewellers said.

Bullion dealers and jewellers are reporting that sales have dropped to levels more than 50% below normal in the past 10 days, said B Govindan, president of All Kerala Gold and Silver Merchants Association.

Weak demand was forcing dealers to offer a discount of up to $25 an ounce over official domestic prices, the largest since September 2016. The domestic price includes a 10% import tax and 3% sales tax.

Demand usually picks up in the second half of the year due to the wedding season and as Indians celebrate festivals such as Dussehra and Diwali, when buying gold is considered auspicious.

"Demand will fall during festivals if prices remain at the current level," said Mukesh Kothari, director at dealer RiddiSiddhi Bullions in Mumbai.

Demand from rural areas has also softened due to drought in some areas and could remain under pressure if this year's monsoon fails, Kothari said.

The Indian monsoon has been progressing slowly with rainfall 37% below average since the start of the season on June 1.

Two-thirds of India's gold demand comes from rural areas, where jewellery is a traditional store of wealth.

The price rise has also prompted some consumers to sell their old jewellery, said Govindan, adding "Some people think this is best time to sell their ornaments."