MUMBAI – Gold discounts in India widened to a record of more than $200/oz on Wednesday, as a surge in prices after the import duty hike triggered investor selling in an already weak demand environment, bullion dealers told Reuters.

India on Wednesday raised import tariffs on gold and silver to 15% from 6% as part of efforts to curb overseas purchases of the metals and ease pressure on the country's foreign exchange reserves.

"Discount levels were crazy in the physical market. We were double-checking prices before executing deals," said a bullion division head of a Mumbai-based private bank, who has traded gold for more than two decades.

Dealers in India offered discounts of up to $207 an ounce over official domestic prices on Wednesday, inclusive of 15% import and 3% sales levies, up from the $17 an ounce on Tuesday.

The duty hike triggered a sharp rise in local gold prices, prompting some investors to cash in on gains by offloading gold, even at heavy discounts, said another Mumbai-based dealer at a private bank.

Both bullion dealers declined to be named as they were not authorised to speak to media.

Gold futures in the world's second biggest consuming market jumped 7.2% on Wednesday to 164 497 rupees per 10 grams, the highest level in more than two months.

Investors were also booking profits in gold exchange-traded funds (ETFs), adding to supply in the market, the bullion dealer said.

Retail buyers and jewellers stayed on the sidelines, increasing selling pressure and pushing discounts to unusually high levels, said Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji.

Bullion dealers also expressed concern that the latest duty hike could boost smuggling, as it widened margins for grey-market operators to about 18%, from around 9%, said a Chennai-based bullion dealer.

Grey market operators smuggle gold from overseas and sell it for cash to avoid duties, allowing them to offer it at discounts to market prices by evading taxes.