Gold declined to the lowest level in a week, after a report said India may reduce imports by as much as half this month amid a depreciation of the country's currency. India is the world's largest consumer of the bullion.
Imports may total 35 to 40 tonnes this month as demand remains "dull", Prithviraj Kothari, the president of the Bombay Bullion Association, told Bloomberg.
Spot gold lost as much 1 per cent to US$1,591.20 an ounce, the lowest price since December 20. Gold for February delivery lost 0.5 per cent to $1,597.30 an ounce in New York.
India's currency has been weighed by global uncertainty, the country's high inflation touching double digits and the fiscal deficit the government is carrying forward, said Pradeep Unni, a senior relationship manager at Richcomm Global Services in Dubai.
The rupee is down 1.62 per cent against the dollar this month, and 18.6 per cent since January, making it the worst-performing currency in Asia, and third-worst performing currency in the world after South Africa's rand and the Namibian dollar.
"A slump in India's stock market, triggered by the global market rout, has accelerated foreign outflows that have also exacerbated the demise of the Indian rupee," Mr Unni said. "With the way the direction of the currency is headed, it's going to be very difficult for Indian residents to buy gold and maintain the same level of demand."
Gold is down 15.4 per cent since its high of $1888.08 an ounce in September as investors perceived the nugget as a risky asset amid fears of Europe's unravelling debt crisis.
"Gold's ultimate safe-haven status seems to have tarnished a bit and investors are relating gold along with other riskier investments like stocks and currencies," Mr Unni said.
Spot silver and copper for March delivery also declined.