Bullion erased initial gains on Friday after the US Federal Reserve indicated the possibility of an interest rate hike in September. In London gold jumped to $1,334 an oz in early Friday trade before falling to $1,321 an oz by the end of the day.

Gold reacted immediately in India with discounts falling to $15-20 an oz on Friday from $35-40 an oz earlier. Standard gold was trading at Rs 31,150 per 10 gm, a marginal decline from its previous close of Rs 31,170 per 10 gm.

“Gold prices are likely to remain under pressure in a range of $1,285-1,300 an oz in international markets. The discount in India is expected to reach zero after the September Fed policy,” said Prithviraj Kothari, managing director, RiddiSiddhi Bullions Ltd, a Zaveri Bazaar-based bullion dealer.

With increased volatility, buyers did not build any fresh positions.

Kumar Jain, director of Umedmal Tilokichand Zaveri, another bullion dealer and jewellery retailer in Zaveri Bazaar, expects a revival in jewellery demand in the wedding season beginning November on stabilising gold prices.

Base and precious metals remained volatile on Friday as Fed Chair Janet Yellen raised the prospects of the near-term rate hike.  Equities, commodities and the dollar surged before  settling near their previous close. The dollar index was last trading at 95.41, the highest since August 15. Comex gold for December delivery declined 40 cents to $1,324.20 per oz.

“Bullion stabilised quickly after the announcement and will remain firm due to India’s festive demand, global uncertainty around the US presidential elections and expectations of a further easing by the Bank of Japan. Base metals may be the only commodity segment significantly impacted by an interest rate hike, expect a fall in prices,” said Jayant Manglik, president, Religare Securities.

“The dollar index shall gain strength and hence gold may witness downside pressure. Crude oil is also trading low, impacting the inflation hedge. In India gold may trade in the range of Rs 30,000-30,500 per 10 gm,” said Naveen Mathur, associate director, commodities and currencies, Angel Broking.

Comex silver for September delivery rose 12.6 cents, or 0.7 per cent, to $18.615 per oz. Trading ranged from $18.470 to $19.035.