"After nearly five months, gold has managed to reclaim the psychological $475 (Rs 30,000) per 10 gram mark. The last time the gold price rose this much in one single day was in September 2008, when it spiked $20 (Rs 1,265) in one day. This week has begun very well,'' said Manmeet Arora, bullion trader.

Arora was unperturbed since several customers had made a beeline to his store in the day, seeking to buy small gold trinkets and gold idols for the festivities set to commence on Tuesday.

The rupee depreciation has also helped in driving gold prices higher. In the last one month, while gold has gained 15%, the rupee has declined over 4%. On Monday, it posted a record closing low of Rs 63.13 to a dollar.

Amidst fears over the Indian government's management of the economy, the Indian rupee has overtaken the Australian dollar and the Japanese yen to become Asia's worst-performing currency this year.

Eoin Treacy's view In an interview this morning with CNBC India the host asked “don't you think the government and RBI have exhausted their policy options for strengthening the Rupee?” My answer was that there is a long list of potential solutions to this issue. The more important question is whether the political leadership exists to push them through?

One of the reasons there has been such speculation about the ability of the BJP to win the next election centres on the political will to push through meaningful reform. The current administration has lost the faith of domestic and foreign investors in this regard which has contributed to capital flight and the widening current account deficit.

The question now is just how much of this news is in already in the price? Oversold conditions are evident across Indian financial instruments and particularly the banking sector. The Bombay Banks Index has fallen from 15,000 in May to test 10,000 this morning. A deeply oversold condition is evident and the sector has been punished by a sharp rise in borrowing costs. Potential for a short covering rally is increasing.

One of the side effects of the loss of faith in the government's ability to manage the economic situation is that demand for gold has increased, despite the levy imposed on imports. The price of gold in Rupees encountered resistance near INR100,000 in December and pulled back to test the INR75,000 area by April. It rebounded impressively from early July as the Rupee weakened and has broken the progression of lower rally highs. While somewhat overbought in the short-term a sustained move below INR80,000 would be required to question recovery potential.

Gold has always been considered a monetary metal in India. Its relative strength compared to the banking sector can possibly be viewed as a barometer of domestic sentiment