Gold Demand Drops as Prices Soar to Record Highs
By Anjana Anil and Polina Devitt
As gold prices hit a record $2,685.42 per ounce, physical demand for the precious metal has plummeted in key markets. Retail consumers are capitalizing on the price surge by selling their holdings to lock in profits, leading to a significant decrease in overall demand, industry experts and analysts revealed.
The surge in gold prices, up by 29% so far this year, has been driven by factors such as U.S. Federal Reserve interest rate cuts and geopolitical tensions, making it the biggest annual gain in 14 years.
According to Robin Kolvenbach, head of Swiss-based refinery Argor-Heraeus SA, “Physical demand in general is super low everywhere now.” While there was a brief spike in demand in August following India’s cut in import duty, demand has since dropped dramatically.
India, the second-largest consumer of gold after China, reduced import duties in an effort to combat smuggling. However, the surge in local prices to all-time highs has deterred consumers, resulting in a significant slowdown in demand, as noted by Prithviraj Kothari, president of the India Bullion and Jewellers Association (IBJA).
In Europe, high interest rates have caused investors to shift towards yield-bearing assets, impacting gold demand in countries like Germany and Austria. The ongoing rally in gold prices has further exacerbated the decline in demand.
Despite hopes for increased activity in physically backed gold exchange-traded funds, inflows remain modest for now. Analysts observe a weakening trend in demand for both physical and paper gold in China, while prices in the country have also reached record levels.
Online marketplaces in the Western world have seen mixed activity following the Fed’s rate cut, with some clients choosing to sell and book profits. However, buying activity remains strong, indicating continued interest in gold as a safe haven asset.
According to Ken Lewis, CEO of U.S.-based online precious metals dealer APMEX, consumers are buying at a higher ratio compared to previous weeks. Similarly, online retailer Gold Avenue has seen a 66% increase in purchases since the rate cut, with a 13% rise in customers selling back their gold.
While visible demand has waned across various segments, gold prices continue to set new highs, defying conventional market logic. Adrian Ash, head of research at BullionVault, acknowledges the disconnect between price and demand, highlighting the perplexing trend in the gold market.
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