Impact of Gold Rally on Physical Demand in Key Markets: A Reuters Analysis

Gold Demand Declines as Prices Rise

By Anjana Anil and Polina Devitt

Physical demand for gold across key markets has tumbled as prices continue to rise, with some retail consumers opting to sell their holdings and book the profit, industry players and analysts said.

Record High Prices

Gold prices rose to a record $2,685.42 per ounce on Sept. 26, marking a 29% increase so far this year – the largest annual gain in 14 years. This surge has been fueled by the start of U.S. Federal Reserve interest rate cuts and geopolitical tensions.

“Physical demand in general is super low everywhere now,” said Robin Kolvenbach, head of Swiss-based refinery Argor-Heraeus SA. “There was a spike in demand in August when India cut its import duty, but since then it has gone completely dead again.”

Impact on Key Markets

India, the world’s second-biggest bullion consumer after China, slashed import duties on gold in July to tackle smuggling but saw local prices rising to all-time highs, resulting in a significant slowdown in demand. Similarly, in Europe, high interest rates led to a decline in gold demand in countries like Germany and Austria.

Market Trends

Analysts note that while ETF demand in Europe and North America remains strong, demand for physical and paper gold in China is weakening from elevated levels. Prices in China have also hit a record, leading to a halt in gold imports from major transit hub Switzerland.

Online Market Activity

Online marketplaces in the Western world have experienced mixed activity, with some clients booking profit while others continue to buy. For instance, customers on Gold Avenue have been net buyers with a significant increase in purchases since the Fed’s rate cut in September.

On the other hand, BullionVault saw a decrease in net selling in September, indicating a shift in market sentiment. Despite visible demand collapsing or turning negative, gold prices continue to climb.

Additional Insights

The surge in gold prices can be attributed to various global factors, including economic uncertainty, geopolitical tensions, and the weakening of the U.S. dollar. Investors turn to gold as a safe-haven asset during times of instability, driving up demand and prices.