On Friday, gold prices eased after the World Health Organisation (WHO) in a statement said that the China Coronavirus outbreak does not yet constitute an international emergency.
Gold futures fell by 0.7 percent to Rs 40,005 per 10 grams on MCX. On Thursday, the metal was trading above Rs 40,700/10 grams on weakness in the Indian rupee and higher global demand for the risk-averse asset.
In the international market, spot gold fell by 0.1 percent to $1,561.86 per ounce.
Silver prices have been falling for two sessions from Rs 47,177/kg on Wednesday to Rs 46,111/kg on Friday.
Gold prices are highly sensitive to important global events and it has a mixed bag of a month for the metal.
The recent increase in demand for the metal was due to rise in fears of the deadly virus in China spreading to other countries ahead of the Lunar New Year, a peak season of travel to and from the region.
However, the signing of phase one of the US-China trade deal, easing tensions in the Middle East and progress in Brexit have improved global economic optimism, pushing investors towards riskier assets like equities.
Further, the US dollar moved near its one-month high after the European Central Bank kept interest rates steady on Thursday. The American labour market data showed signs of strengthening despite slowing job growth.
While global economic growth is showing signs of improvement, uncertainties that drive gold prices remain.
Investors now await results of the US Federal Reserve's first meeting of the year scheduled on 28-29 January.
"With a low interest rate environment, geopolitical risks and uncertainties such as U.S. President's impeachment, the conditions are still quite conducive to further upside in gold," said ANZ analyst Daniel Hynes to Reuters.
Should you buy gold now?
While there is no way to predict what could trigger demand for gold in the near future, if you are looking to invest in the metal for the long-term, it would be wise to wait for prices to ease below the Rs 40,000-level.
Gold can face resistance near Rs 40,500, SMC Global said, which means that prices are unlikely to see major upward movement.
Over the long-term, geo-political risks and the metal's scarcity could push prices up.
Gold prices remain on higher levels despite the US-China trade deal as investors are still cautious regarding phase-2 deal after the first phase did not clear major trade issues between the two economies.
The coronavirus has spread across Asia to South Korea, Japan, Thailand, Taiwan, Vietnam and Singapore, where cases have been confirmed. The full extent of the damage from the outbreak is yet to be understood, creating cause for vulnerability in the markets.
Additionally, demand for gold generally picks up in China and Singapore during the lunar New Year celebrations.