Gold prices rose sharply to reclaim the Rs 26,000-level on Saturday as interest rate hike in the US next week looks like a done deal.
The yellow metal prices gained Rs 290 to close at Rs 26,000 per 10 grams at the bullion market, tracking strength the metal prices in overseas markets.
The US Federal Reserve is widely expected to hike interest rates for the first time after a gap of 10 years at its two-day meeting on 15-16 December. But markets will squarely focus on its statement for hints on further monetary tightening in the coming months.
"The US central bank is almost certain to raise rates for the first time since 2006, but this is surely now priced in to the markets. A dovish accompanying statement should therefore limit the downside for commodities, especially gold," said Capital Economics in a note.
"We expect the gold price to recover significantly during the course of next year following the first Fed interest rate hike," said Commerzbank Corporates & Markets in a note.
Meanwhile, precious metals' prices are also supported by increased buying by jewellers to meet a spike in demand in the wedding season.
However, gold prices could come under pressure due to slowing demand in rural areas, which account for a significant part of metal consumption in the country, as a result of poor monsoon rainfall for the second consecutive season this year.
According to the World Gold Council estimates, gold demand in the country is expected to touch an eight-year low in the current quarter.