Gold jewellery exporters, bullion banks, and traders have sought immediate permission to export gold or at least source gold required by them from the domestic market.

Current regulations require exporters to replenish their requirements only through imports.

The widening difference between domestic and international gold prices will lead to a dead-end situation if the surge in gold prices continues for another fortnight, a prospect that is creating jitters among the gold fraternity.

"If this situation continues with no outlet for gold purchased in the form of scrap or household jewellery, the bullion trade will come to a grinding halt," traders cautioned.

"The government needs to act fast before the crisis blows out of proportion. Immediate permission to export gold should be granted," Rajan Venkatesh, director marketing, Scotia Mocatta, bullion division of Bank of Nova Scotia, said.

Agreeing on the request for export permission, Vijaykumar Sarda, a bullion dealer and former vice-president of the Bombay Bullion Association, said, "The government could  also look into allowing jewellery exporters or traders holding export licences to source their requirements from the domestic market."

"If either of these measures are not permitted, India could well see a repeat of 1980, when there was a big flight of silver in unofficial trades. The international price of silver then was Rs 12,000 per kilogram as against the domestic price of Rs 6,000," Sarda explained.

The situation might even result in hawala trades in foreign exchange, another gold dealer warned.

However, Shrikant Zaveri, managing director of Tribhovandas Bhimji Zaveri, was of the view that if the Iraq-US situation blows off, the market could cool down and gold price could stabilise at around $ 350-355 per ounce, thereby diffusing the pending crisis.