Gold wholesalers in India, the world's biggest buyer of the metal, rushed to sell their stocks purchased before the import duty hike to lock in profits and cut inventory costs.
According to industry players, most of the wholesalers had imported about 70 tonnes together in the first three weeks of January, taking advantage of a signal by the finance minister of duty hike early this month. On January 21, India hiked import duty on the yellow metal to 6 percent from 4 percent.
"There is good investment demand since customers are witnessing this level of below 30,300 rupees per 10 grams after many days," said Prithviraj Kothari, director with RiddhiSiddhi Bullions Ltd, a wholesaler in Mumbai.
Wholesalers are selling part of their old stocks and offering a discount of $6 to market price, Kothari said.
Gold prices on the Multi Commodity Exchange ( MCX ) traded in the vicinity of the lowest level in more than six months of 30,215 rupees, a level last seen on July 20, 2012. The yellow metal has shed about 2 percent in January.
"Those who have built up a large inventory before the tax hike are now floating their metal to lower the funding costs needed to maintain that stockpile, that's why they are selling at a discount right now," said a Mumbai-based bank trader.
"To offload the stocks in a market where a huge inventory has been built up, people are selling at a discount of about half a percent, or $6," he said.
All eyes are now on the budget for any new changes for the gold industry, traders said.
"People are looking at the budget on the duty front and other reform measures," said Mayank Khemka, managing director with Khemka International, a wholesaler in New Delhi. India's budget is due in the last week of February.
Silver contract for March delivery on the MCX was 0.31 percent higher at 58,085 rupees per kg.