Indian gold refiners just months ago were ramping up capacity and struggling to secure enough ore from miners. Now, they are suspending operations as a surge in smuggled bullion wipes out wafer thin margins.
Gold importing banks and big jewellers have also been hit by the growing entry of illicit gold, which avoids import duties and makes its way on to the so-called "grey market" where it is sold to end-users at a discount.
Smuggled gold could account for more than a third of demand this year in India - the world's second-biggest buyer of the metal after China - potentially costing the government over $1 billion in lost revenue.
The upsurge will lead to pressure for a reduction in the 10 percent import duty and a rethink on recently introduced levies on gold jewellery, which critics say are boosting the unofficial trade the government has been trying to curb.
"Gold refiners have less than a 1 per cent margin. If smugglers offer 4 or 5 per cent discounts, then we have no choice but to close our operations," James Jose, secretary of the Association of Gold Refineries and Mints told Reuters.