Gold futures rebounded on Thursday from their lowest level in two weeks, tracking gains in overseas prices, though a strong rupee limited the upside.
Despite the price rise, demand improved slightly as jewellers were seen placing orders for the peak festive season.
At 2:57 p.m., the benchmark October gold contract the Multi Commodity Exchange (MCX) was 1.21 percent higher at 29,886 rupees per 10 grams. It hit a low of 29,352 rupees on Tuesday, a level last seen on September 18.
"Some jewellers are placing orders as they have very thin inventory. They want supplies for Dussehra and Diwali," said a dealer with a private importing bank in Mumbai.
India will celebrate the Hindu festivals of Dussehra in the third week of October and Diwali in the first week of November, a period when buying gold is considered auspicious.
Some banks, which are primary dealers of bullion, re-started imports after the customs department gave its approval to some lots.
Imports had virtually stopped after the so-called 80/20 principle, which tied exports with domestic consumption, creating confusion among government officials, and prompting the commerce ministry to call a meeting to break the deadlock.
Overseas, gold held onto sharp overnight gains in Asian trading on Thursday as weak U.S. economic data and a partial government shutdown raised hopes that the Federal Reserve would stick to its bullion-friendly stimulus for longer.
The rupee rose 1 percent on Thursday. A strong rupee makes gold imports cheaper.
Indian markets were closed on Wednesday for a national holiday.