(Kitco News) - Gold hit an all-time

(Kitco News) - Gold hit an all-time high against the Indian rupee Wednesday and analysts are expecting that the higher prices could have an impact on demand in the near-term.

Gold, priced in rupees, hit a record of Rs 33,265 per 10 grams. According to analysts, the biggest factor behind gold’s localized rise is that the Indian currency slid to a new all-time low of Rs 69.22 against the U.S. dollar on the same day.

Paolo Lostritto, director, equity research analyst, metals and mining with National Bank Financial said that consumers throughout India have been hoarding gold the last few months in anticipation and fear that the country’s currency would be devalued.

“Even though their cost of buying gold has gone up by 10%, on a net basis, because their currency has fallen so much, they are still up,” he said. “It has actually reinforced people’s thinking and psychology towards gold.”

However, Lostritto added that moving forward he doesn’t see demand as strong as the price is no longer the bargain it was just a few months ago. Looking at the international market, Lostritto said he is starting to see some short-term equilibrium between the price and demand.

Jessica Fung, commodity analyst at BMO Capital Markets, said if the rupee continues to weaken against the U.S. dollar, consumers might jump back into gold to protect their wealth. For example, earlier this year South African investors jumped into platinum-backed exchange traded funds to protect their wealth as the rand lost significant ground to the U.S. dollar, she said.

Fung added that she doesn’t expect to see a similar performance in Indian ETF markets as culturally consumers prefer to hold physical gold.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, said gold hitting an all-time high in rupees will definitely hurt demand going forward.

He said not only does the high price hurt demand but the middle class has very few options to protect their wealth as the rupee loses ground to the U.S. dollar. He added that import restrictions and higher tariffs, put in place by the Reserve Bank of India and the Indian government, make it difficult for regular consumers to buy gold.

“Only the very wealthy will be able to buy it in Dubai, where there is no tax on the gold,” he said.

Simon Derrick, chief currency strategist from the Bank of New York Mellon, said that there have been two major factors hurting emerging-market currencies like the Indian rupee.

Since May, the U.S. dollar has made significant gains against the rupee as the U.S. Federal Reserve started talking about slowing its monthly bond-purchasing program. Derrick said India’s massive current account deficit makes it an unattractive investment because it shows the country is not as self sufficient as other countries.

He added the selling pressure picked up this week because as global uncertainty grew as a result of continued turmoil in the Middle East and the threat of U.S.-led military action against Syria.

However, Derrick said he expects government and central bank officials prefer the selloff in the rupee as it has managed to protect the country’s equity market. Derrick pointed out the currency has declined 24% against the U.S. dollar so far this year and the Indian stock market has only declined 10.5%, which is a much better performance compared to other emerging equity markets.

“(The central bank) is letting the currency take the strain,” he said.

Derrick said he would not rule out continued weakness in the rupee; however, the selloff could slow down if the Federal Reserve stops talking about tapering its bond purchase program. The Fed could hint at moderating its tapering stance this weekend during a Group of 20 meeting, he added.

“I don’t think we have seen a light at the end of the tunnel of emerging markets,” he said. “When we start to see what comes out of the G20, my guess would be there will be some light just around the corner.”