Indian gold falls below pre-duty-hike levels as overseas prices drop

Indian gold prices dropped nearly 2% on Wednesday to their lowest since early May, falling below pre-duty-hike levels following a sharp decline in global bullion prices.

The price correction could boost gold demand in the world's second-biggest consumer of the precious metal and lead to higher imports, dealers said.

Domestic gold futures MAUc1 fell 1.93% on Wednesday to 149,500 rupees per 10 grams, their lowest level since May 5.

India last month raised import tariffs on gold and silver to 15% from 6%, as part of efforts to curb overseas purchases of the metals and ease pressure on the country's foreign exchange reserves.

"Gold jewellery demand has been subdued in recent weeks. The correction in prices could encourage buyers to return," said a Mumbai-based bullion dealer with a private bank.

India's sharp increase in gold import tariffs is fuelling a resurgence in smuggling that could exceed 100 metric tons this year, as soaring grey market margins allow smugglers to undercut banks and refiners of the precious metal, industry officials and bullion dealers said.

-Reporting by Rajendra Jadhav; Editing by Janane Venkatraman/Reuterss