"Activity is good due to a correction in prices, which was anticipated. Few people are trying to stock up at these levels in case a customs duty hike comes in," said a dealer with a private bullion importing bank.
A strong dollar overseas also contributed to the fall in the yellow metal.
Worried by ballooning current account deficit, the finance minister hinted at making gold shipments more expensive, saying it was under consideration, but did not elaborate on the type of measures. India has a 4% import duty on gold.
The RBI also recommended restrictions on value and volumes on importing banks and agencies.
Silver fell the most in more than four months. The March delivery contract on the MCX fell to Rs. 56,841, its lowest since August 31. It was 2.96% lower at 56,917 rupees per kg as of 3.15pm.