KATHMANDU(BullionStreet): Wedding season demand boosted gold in Nepal but the acute shortage of the commodity forced customers to buy the metal with a high premium of Rs 1000 per tola.

According to Nepal Gold and Silver Dealers Association (Negosida), people are buying gold with a premium of Rs 1,000 per tola (11.664 gm) over the daily price fixed by it.

Gold is also being used as a mode of payment to Indian traders due to shortage of Indian currency, analysts said.

Nepalese importers have been using gold to make payments for goods being imported from India for the last three months, leading to shortage of the yellow metal despite recent hike in gold prices.

Nepal is highly dependent on India for import of foreign goods and it is estimated that three-fourth of Nepalese imports comes from India.

The Association said some jewelers took advantage of the situation as there is a demand for more than 30 kg of gold a day but the supply has remained below 15kg.

Analysts said shortage of gold in Nepal's markets remained the major cause for price hike this season with the banks failing to supply gold this week due to Tihar holidays.

They added that the supply situation has worsened after some commercial banks authorised to release gold in local market were unable to import from international market last week because of Tihar holidays.

The traders have been demanding the government increase the gold quota, saying that the provision of 15 kg a day was insufficient.

The central bank provision requires banks importing gold to distribute 60 percent of the daily quota of 15 kg in Bagmati Zone and the remaining in other parts of the country.

Daily demand for gold during the wedding season in Nepal ranges from 30 to 40 kg a day but commercial banks are permitted to sell only 15 kg, remaining demand is being partially fulfilled by gold imported illegally, analysts said.