Gold demand in India, the world's biggest consumer of the metal, jumped on Wednesday as buyers preponed purchases on concerns the government may raise the import duty on Thursday to control a record current account deficit.
The government has already targeted gold, second only to oil in value of imports, by raising the duty to 6 percent from 4 percent on January 21. A government report on Wednesday recommended reining in gold imports to curb external deficit.
"Jewellers and traders are a bit worried about the government policy. They are buying on expectations of some moves to curb gold imports in the budget. There might be a higher duty or quantities restriction on imports," said a Mumbai-based dealer with a state-run bullion importing bank.
Trade Minister Anand Sharma said last week that he was discussing further curbs on gold imports with Finance Minister P. Chidambaram, who will present what is expected to be an austere budget for 2013-14 on Thursday.
As of 4.25, the benchmark April contract on the Multi Commodity Exchange (MCX) was 0.65 percent lower at Rs 29,896 per 10 gram on a strong rupee. The contract had hit a seven-month low of Rs 29,263 last week.
The rupee, which plays an important role in determining the landed cost of the dollar-quoted yellow metal, rose on Wednesday.
Globally, gold edged lower, but held near a 1-1/2-week high hit in the previous session as the US Federal Reserve reassured investors of its commitment to loose monetary policy, burnishing bullion's appeal as a hedge against inflation.
The silver contract for March delivery on the MCX was 0.94 percent lower at Rs 54,067 per kg.