Gold demand in India, the world's biggest buyer of the metal, slowed in the middle of a slack season, but traders expect a mild revival in demand if prices fall below 25,000 rupees mark.
Gold imports into India declined about 81 percent on month to 31.5 tonnes in June after the government raised import duty and stopped consignment imports, but demand could rise in the coming months, creating problems for a government battling a record high trade deficit.
"Market is quiet slow ... some nominated agencies are still importing in the market," said Ketan Shroff, director of Penta Gold, a wholesaler in Mumbai.
Traders said their clients were eyeing a further drop of 4 percent from the current levels.
Most of the demand is met by state-run trading agencies such as MMTC, State Trading Corp and PEC, along with Scotia Bank, while other private and public banks are waiting for guidelines from the central bank on imports on cash basis after a ban on consignment basis.
"We are not doing much business as of now due to RBI restrictions...," said a source at MMTC, who wished not to be named due to company policy.
The source said the company had just 1-2 shipments of 200 kg so far in July, compared with 500 kg per shipment about two years ago.
At 1:57 p.m., the actively traded gold for August delivery on the Multi Commodity Exchange (MCX) was 0.43 percent higher at 26,220 rupees per 10 grams, helped by overseas leads.
However, a strong rupee kept the upside in check. The rupee plays an important role in determining the landed cost of the dollar-quoted yellow metal.
The Indian rupee rallied from a record low in the previous session after regulators restricted speculative trading in currency derivatives, although the measures are expected to provide only brief respite for the currency.
Silver for September delivery on the MCX was 0.49 percent higher at 40,587 rupees per kilogram.