Gold dealers in India charged a premium over official domestic prices this week as demand improved alongside a price drop. Dealers charged $1.5 an ounce premiums over official domestic prices versus $6 discounts last week, Reuters reported. Gold rates in India included 15% import duty and 3% GST.

The price fall in domestic markets follows a sharp drop in global rates. COMEX gold fell 1.6% on Friday to $1,650 per ounce, down about 3% so far this week. A rise in US dollar and firm US bond yields pressured gold.  Gold is highly sensitive to rising U.S. rates, which boost bond yields, increasing the opportunity cost of holding non-yielding gold.

Data released on Thursday showed US consumer prices increased more than expected in September, boosting chances of another big rate hike from Fed. 

“Higher price pressures signal that inflation is not yet under control and may prompt the Fed to continue with its aggressive policy stance to bring inflation near its target,” Kotak Securities said in a note. 

The current spell of gold weakness may continue till there is more concrete information on the state of the economy in the major economies, especially against the background of an aggressive central bank trade-off unfavourable to growth and promoting stability, Emkay said in a note. 

“The rate hike by the US Fed has led to the US Dollar strengthening against major currencies of the world. A firm dollar makes buying gold much more expensive thereby reducing the investment appetite.  The rise in the US interest rates and the likelihood of the hawkish stance of the Fed converting itself into rate hikes which may go well into the next year as well may keep gold prices at the lower end of the range.”

It is widely expected that in the near future gold may remain in narrow ranges, Emkay added.