Gold prices on Wednesday gained over one per cent or Rs 500 per 10 grams in futures hitting Rs 41,200 per 10 grams for MCX February contract, and CME gold futures hit a record $ 1604.2 an ounce after Iranian retaliatory action to the last week's US airstrike.

According to local jewellers, the physical demand has taken a hit at record high prices, despite this being the peak marriage season in various parts of the country. "At this price level there is very thin demand for new gold in the spot market. Most buyers are using old gold to exchange for new. So even if we have good footfalls for marriage season, the net sales turns out to be much less," stated a jeweller based in Ahmedabad.

Slowing physical demand at persistently higher prices is set to impact India's gold imports. The imports for the 2019 stood at 800-830 tonnes.

"The imports will definitely get a hit because not much physical demand is expected around at this peak levels. Additionally, a lot of recycled gold is likely to get into the market so the imports in 2020 will be less than what we say in 2019," said Haresh Acharya, Director, India Bullion and Jewellers Association (IBJA) told Businessline.

Notably, the gold imports last were were the lowest in three years and there is set to be further decline in imports going forward in 2020.

The yellow metal, after surging about 5 per cent since the start of the New Year 2020, on Tuesday fell by one per cent in spot as well as in futures giving signs of cooling off.

Indian rupee's weakening trend is also adding fuel to the rising gold prices. Rupee is expected to remain in the range of Rs 72.30 to Rs 71.70 against a dollar.

While the bullion experts attribute the latest softening in the prices to the receding war concerns between the US and Iran, the yellow metal is less likely to be settled at the current levels and may scale new heights as Iran prepares to avenge the US strike.

Iran, later on Tuesday, has reportedly fired about a dozen ballistic missiles on US establishments in Iraq triggering fears of a war. However, Trump's response to the attack saying "All is Well" and the US stance on exploring diplomatic solution to the tension has supported global markets.

The jewellers body, India Bullion and Jewellers Association (IBJA) quoted Tuesday's afternoon gold rates at Rs 40,537 without tax as against a peak of Rs 40,928 (for 999 purity without tax) per 10 grams on Monday.

"The International Gold prices are fluctuating after hitting a peak. But gold still remains under 'war zone' and there are chances of a sudden spurt," Acharya said.

International gold hovered at around $ 1590 after hitting a fresh peak of $ 1604 briefly on Tuesday for CME January futures. The yellow metal had tested the last peak of $ 1582 in April 2013.

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