"The demand in January has been better than December because there were more auspicious days in the calendar," Rajiv Popley, a leading jeweller said from Bombay, the business capital.
Gold lost more than $2 an ounce in Asian trade after the weekend election in Iraq ended without major violence.
Dealers expect gold to trade in a familiar $421 to $428 an ounce range as the market turns its attention to a Group of Seven summit and a US Federal Reserve rate-setting meeting this week.
"The price fall will trigger more buying at a time when physical demand in the domestic market is very high," Suresh Hundia, president of Bombay Bullion Association, said.
Spot gold was quoted at $423.40/4.15 an ounce by 0631 GMT, compared with $426.00/426.80 late in New York and London's Friday afternoon fix at $426.80.
Bullion dealers had expected gold to rise if insurgents had heavily disrupted Sunday's elections in Iraq, as geopolitical tensions normally lift gold's safe-haven appeal. Gold is also used as a hedge against inflation.
Traders said about 500 kg of gold was being imported in Bombay daily against 300 kg in December, when prices were high.
Gold was quoted at about $437 after the Christmas and New Year holidays. On January 11, it fell to about $422.
Sales in Gujarat's main city of Ahmedabad, which supplies gold to adjoining states of Maharashtra and Madhya Pradesh, have doubled to about 600 kg daily from a month ago, traders said.
Indian gold prices follow global trends because the country imports an average of more than a tonne of gold a day to meet nearly two-thirds of its annual gold needs of about 600 tonnes.