Gold imports in the first quarter almost ground to a complete halt largely due to a sharp rise in prices.

The country imported Rs60 million worth of the yellow metal during the period mid-July to mid-October, down from Rs7.5 billion in the same period last year, Nepal Rastra Bank said. In the whole of the last fiscal year, gold imports totalled Rs34 billion.

Plunging gold imports helped to trim Nepal's trade deficit by 12 percent in the first three months of the fiscal year, according to the central bank report.

Traders said prices had soared in unexpected ways due to trade tensions between the US and China, prompting investors to turn to gold as a safe haven since its value typically rises during times of economic weakness and market volatility.

Domestic factors like increased customs duty are partly responsible for the hike in prices, bullion merchants said.

Laxmi Prapanna Niroula, spokesperson for Nepal Rastra Bank, said demand for gold decreased steeply after prices rose unprecedentedly.

Prices have been on an upward trend since June, leading people to sell their holdings which resulted in gold sales decreasing drastically. “Banks were also compelled to stop importing because there were few buyers,” said Niroula.

According to Anil Sharma, executive director of the Nepal Bankers Association, banks imported 600 kg of the yellow metal in the first three months of the current fiscal year. “They used to import 600-650 kg monthly when the rate was normal,” he said. He added that sales had started picking up in the past few weeks despite the hiked price.

Tej Ratna Shakya, former president of the Federation of Nepal Gold and Silver Dealers’ Association, said that people had been waiting for three months to buy gold, hoping prices would fall. “But the price did not fall, and there is still no sign of it decreasing.”

The Federation of Nepal Gold and Silver Dealers’ Association fixed the gold price at Rs71,200 per tola on Tuesday. The market closed with the trading price of Rs69,900 per tola on Friday and opened at Rs71,000 per tola on Sunday.

The government has hiked the customs duty on the import of commercial gold by Rs1,500 per 10 grams effective from Friday. With this, the customs duty on 10 grams of gold will now come to Rs6,500.

The Department of Customs said that that the duty had been hiked on a par with India to prevent smuggling. Chances of gold smuggling are high due to the open border as gold is cheaper in the Nepali market, said the department.

Shakya said that though the price of gold has decreased slightly in the international market, it has increased in the local market due to a hike in the customs duty.

According to Reuters, gold fell on Monday to its lowest in more than three months as spot gold fell 0.1 percent to $1,456.98 per ounce having touched its lowest since August 5 earlier.