Jewellers in India are facing a bleak outlook as record high prices and fading demand threaten to drag annual gold sales to the lowest in three years. With demand growing 9 per cent during the January-June period, jewellers were expecting consumption to increase after a subdued couple of years. Those hopes are evaporating after a combination of high taxes, record prices, slowing economic growth and floods country are poised to erode demand in the peak festival season that begins later this month.

“Everything is hitting us at the same time,” N. Anantha Padmanaban, chairman of the All India Gem & Jewellery Domestic Council, said. Full-year demand is expected to be at par with 2016, when consumption slumped to a seven-year low of 666 tonnes, as buyers restrict themselves to wedding-related purchases. India’s consumption of gold has been affected by the government’s efforts to curb its trade deficit and measures to discourage investors who used the metal to evade taxes. Prime Minister Narendra Modi’s administration increased the import tax on the precious metal in July, which pushed domestic prices to an all-time high of Rs 38,666 ($541) per 10 grams last week.

“A 5 per cent or 7 per cent jump itself was very difficult for us to convince the customers,” Padmanaban said. “But with a 20 per cent hike in just 30-40 days, it is going to be hell for the next one or two months.” The higher prices coincide with a slowdown in the Indian economy. Imports, which comprise almost all the gold that India consumes, slumped to the lowest monthly inflow in July since at least March 2016. Inbound shipments from Switzerland dropped 38 per cent last month from June.

“Everybody is asking the organisation to do something to promote sales. But prices have to settle down,” Padmanaban said. “Even if we do a festival, at these prices customers won’t react immediately.”