Gold jewellery
The decision to retain import duty on gold at 10 percent saw prices rising and gold stocks falling. Picture: Gold bracelets on display in a jewellery showroom.Reuters

Gold prices recovered to Rs 26,000 after a gap of three weeks, supported by rising metal prices in international markets and a pick-up in demand from jewellers and retailers ahead of the festive season.

In the domestic bullion market, price of the yellow metal rose Rs 600 to Rs 26,000 per 10 gm on Wednesday, posting their biggest one-day gain so far this year, NDTV Profit reported.

Globally, gold traded above the $1,100-an ounce mark, a level not seen in the past three weeks.

"The renewed devaluation of the Chinese Yuan – the Chinese central bank has once again increased the fixing of the USD-CNY – is lending renewed support to gold," said Commerzbank Corporates & Markets in a note.

Chinese authorities unexpectedly devalued the country's exchange rate on Tuesday in a bid to revive the country's slowing economy. China allowed the currency to fall further on Wednesday.

The devaluation measure led to a sharp slide in yuan value, down 4% in the past two days. The yuan depreciation led to a sharp sell-off in global financial markets, boosting demand for safe-haven assets such as gold.

Further, a depreciating rupee also underpinned gold prices, as a fall in rupee value makes gold imports costlier.

The rupee depreciated to a two-year low, as China's currency devaluation move triggered fears of a global currency war. 

Besides, receding expectations over the interest rate hike by the US central bank next month also help gold prices recover.

"Lower rate hike expectations are also giving gold a boost – the probability of the Fed raising interest rates in September having dropped to only around a third, according to the Fed Fund Future," said Commerzbank.

Aggressive buying of gold by jewellers and retailers at lower levels also propped up gold prices.

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