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 rebounded to a two-month high on Friday, as a slew of positive factors such as weakening rupee, demand from jewellers and uncertainty over interest rate hike in the US in September, supported the yellow metal prices.

In the domestic bullion market, the prices of gold rose sharply by Rs 480 to Rs 27,180 per 10 grams, recovering to over Rs 27,000-level again.

Overall, the precious metal prices went up by Rs 2,200 in the past twelve consecutive sessions, recovering from a five-and-a-half-year low hit earlier this August.

The rally is mainly driven by falling expectations over the interest rate hike by the US Federal Reserve in September, as inflation still remains below the required level for monetary tightening to begin. "Recent global market developments, together with the July Federal Open Market Committee (FOMC) minutes, which were perceived as dovish, suggest that the probability of a later liftoff has risen," said Barclays Capital in a note.

The July FOMC minutes released on Wednesday showed that some of the committee members still believe that inflation is still low to start raising rates. The dovish minutes resulted in weakening of the US dollar and pushing up the gold prices. "The market is now pricing in a 35-40 percent probability of the Fed hiking in September versus an earlier estimate of 55 percent," said the note.

Depreciation in rupee to two-year lows also underpinned the gold prices, as a fall in rupee value makes gold imports costlier. Besides, a pickup in demand from jewellers ahead of the wedding season has driven the gold prices higher.

Further, the sell-off seen in global stock markets recently has helped the gold prices, due to its safe-haven status. Investors rush to buy the metal whenever concerns arise over the health of global economy.

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