(Reuters)

Gold premiums in India, the world's biggest buyer of the precious metal, hit a record $100 an ounce, about 8% over London prices, on a shortage of supplies to meet festival demand, traders said on Tuesday.

Banks, the primary dealers of bullion, are currently importing the yellow metal chiefly for exporters, as under the so-called 80/20 principle, jewellery exporters get priority for supplies over domestic manufacturers.

The principle, part of a package of measures announced in July aimed at cutting India's current account deficit by reducing gold imports, states that 20% of all gold imported into India must be re-exported.

"There are no supplies in the domestic market, and there is a little demand due to festivals... what little supplies that come, go to exporters," Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation (GJF) told Reuters.

Most suppliers in Mumbai and Kolkata have started quoting premiums in excess of $100 an ounce above London prices, more than double the $40 charged last week, Bamalwa said.

Due to the additional premiums, quoted gold prices in India are 8% higher than the current spot price of $1,261 an ounce.