Global gold prices fell below US$ 1,300 per ounce yesterday for the first time since the Brexit vote in June after dropping about 3.3%, the largest single day fall of in nearly three years, as markets reacted to the growing possibility of a US Fed rate hike this December, even as Reserve Bank of India somewhat unexpectedly announced a cut in the basic repo rate.

Though festive season buying by jewellers supported the domestic gold price in India initially, the impact was seen in trading earlier today, with prices of the yellow metal coming closer to the Rs 30,000 per 10 gms mark at Rs 30,500 levels for the first time in many weeks.

Over the last couple of weeks, gold has reversed the strong growth trend seen through the year, and though the yellow metal continues well above the levels that it began 2016 at, there appears to be some plateauing out with the strengthening of the dollar on positive economic data from the US. A recently released report from Institute of Supply Management put the index of manufacturing activity in the US at 51.5 in September, above the 49.4 in August and the market expectation of 50.3.

Data on jobs and non-farm payrolls which are expected by the end of the week may lead to a further strengthening of the dollar, even as leading bankers indicated that the Fed rate hike is almost sure to take place before the year end.

The RBI announcement of a 25 bps cut in the RBI repo rate, somewhat unexpectedly at that, which took the rate to its lowest level since Jan 2011, also acted as a dampener for gold. With demand for the yellow metal already sluggish this year, greater government tolerance for inflation will weaken the rupee internationally and push domestic prices up over time, it is feared.