Sept. 28 (Bloomberg) -- A slump in gold prices from a record will fuel demand for the precious metal before a festival season in India, the world’s largest consumer, according to the nation’s biggest jewelry retailer.

“The price has come down, and there has been a rush in demand in the last two to three days,” Bhaskar Bhat, managing director of Titan Industries Ltd. (TTAN), said in an interview to Bloomberg UTV today.

Immediate-delivery gold declined 8.8 percent in the three days before today, the biggest three-day drop since the failure of Lehman Brothers Holdings Inc. in 2008, as some investors sold the metal to cover losses in other markets, which plunged on concern that the global economy may lapse into recession. A recovery in Indian demand may help gold extend its 16 percent rally this year.

“Everyone is a buyer now, and the investment demand is huge,” Prithviraj Kothari, president of the Bombay Bullion Association said in an interview. “Before the fall in prices, the showrooms were empty, and now there are queues for purchasing gold coins and bars.”

Gold for immediate delivery climbed $27.58 or 1.7 percent, to $1,653.93 an ounce at 12:05 p.m. in Mumbai. It rose to a record $1,921.15 on Sept. 6. December-delivery bullion surged as much as 4.1 percent to $1,660.20 an ounce in New York before trading at $1,655.40.

A better-than-expected monsoon may push up rural incomes and boost India’s gold imports by more than 4 percent to 1,000 metric tons this year, Kothari said on Sept. 20.

Wedding Season
“Imports during the second half of 2011 will be around 500 tons,” he said today. Purchases in the first half were about 550 tons, he said.

Gold demand in India peaks during the festival season, which started with Eid last month and ends in October with Diwali, and is followed by the traditional wedding season. Demand for coins and bars are also rising as investors seek a haven against inflation.

Investment demand for gold in India jumped 78 percent to 108.5 tons in the three months ended June 30, the second-highest quarter on record, according to the World Gold Council. Consumption rose to a record 963.1 tons last year, driving imports to the highest level ever at 958 tons, according to the council.

The decline in gold prices has made the precious metal more attractive to investors “as other alternatives are not as attractive,” Titan’s Bhat said.

Bullion is heading for its 11th annual gain as Europe’s sovereign-debt crisis and concern that the U.S. economy may be slowing spur demand for a haven. Gold will climb to a record $2,038 an ounce by year-end, according to the average estimate of 16 respondents in a Bloomberg survey conducted at a London Bullion Market Association conference in Montreal this month.