India Ratings and Research (Ind-Ra) on Friday maintained a negative outlook on domestic gold prices for FY 2015-16 and said rates are likely to decline to touch Rs 20,500 per 10 grams in India from the current levels if the US Federal Reserve effects a rate hike.

"The agency believes movements in gold prices will largely depend on the US interest rate decision. In the event of a US rate hike, global gold prices could drop and range between US $900 an ounce to US $1,050 an ounce. As such, the domestic price of gold may decline and range between Rs 20,500-24,000 per 10 grams from the current levels of Rs 27,000," Ind-Ra said.

The rating agency expects a higher rate hike to cause gold price to fall by 10-25%.

However, it said, if the US continues to delay the interest rate hike, while major economies such as Japan and the eurozone continue with their unconventional monetary policy (UMP), the price of gold could creep up and range from US $1,300-1,350 an ounce in FY16.

Correspondingly, domestic prices could also increase from current levels and trade in the range of Rs 29,500-30,500.

If major global currencies, other than the US dollar, weaken because of economic concerns, even in the absence of a US rate hike there might be brief spells of simultaneous strengthening of gold price as well as USD, it said.

However, this is not a common occurrence, it pointed out.

The agency also believes that the local premium for gold in India will remain stable in FY16.

"Improved import supplies was based on substantial reduction in the FY15 local premiums.

Local premium averaged to an estimated 1% in FY15, compared with 4% in FY14," it said.

Gold is often considered a hedge against an economic uncertainty and is best reflected in central banks across the world remaining the net-buyers of gold.