Gold surge cripples physical demand in key markets By Reuters

By Anjana Anil and Polina Devitt

BENGALURU/LONDON (Reuters) – Physical demand for gold in key markets has eased as prices continue to rise, with some retail buyers opting to sell their holdings and book profits, industry players and analysts said.

rose to a record high of $2,685.42 an ounce on September 26 and has gained about 29% so far this year – on its way to its biggest annual gain in 14 years – fueled by the start of interest rate cuts at the Federal Reserve from the US and geopolitical tensions.

“Physical demand in general is super low everywhere right now,” said Robin Kolvenbach, head of Switzerland’s Argor-Heraeus SA refiner. “There was a spike in demand in August when India cut its import duties, but since then it has completely disappeared again.”

India, the world’s second-biggest bullion consumer after China, cut import duties on gold in July to crack down on smuggling, but has since seen local prices rise to record highs. (NAKED)

“Consumers are finding it difficult to cope with rising prices. We are currently witnessing a sharp slowdown in demand,” said Prithviraj Kothari, president of the India Bullion and Jewelers Association (IBJA).

In Europe, Germany remains the largest physical investment market for gold, but demand in the country, as well as in Austria, has been hit hard since 2020 as high interest rates have led investors to shift to yield-bearing assets.

The rise in the price of gold this year has further hit demand.

“Demand from merchants and banks has fallen by around 50%, while imports of bullion and newly minted coins have shrunk by almost 80%. The difference is covered by secondary materials from redemptions,” said Wolfgang Wrzesniok-Rossbach, the founder of the company. consultancy for precious metals Fragold GmbH.

Analysts hope another crucial category of demand, physical-backed gold exchange-traded funds, will see more activity in the coming months, but for now their inflows are fairly modest.

“While demand for ETFs in Europe and North America may be strong, demand for both physical and paper gold in China now appears to be easing from high levels,” said Hamad Hussain, analyst at Capital Economics .

Prices are also at a record high in China, which did not import gold from major transit hub Switzerland in August for the first time in 3-1/2 years.

Meanwhile, online markets in the Western world have seen mixed activity since the Fed’s interest rate cut on September 18, with some clients choosing to take profits, although buying is still high.

“We’re seeing consumers actually buying at a higher ratio than we’ve seen in previous weeks,” Ken Lewis, chief executive of US online precious metals dealer APMEX, told Reuters.

For online retailer Gold Avenue, investors have turned into net buyers, with a 66% increase in buying since the Fed’s interest rate cut in September. “We are also seeing a 13% increase in customers selling their gold” since that date, said Nicolas Cracco, its chief executive.

For online marketplace BullionVault, net sales in September fell ahead of the Fed decision and by the end of the month totaled a third of a metric ton.

“The cure for high prices should be high prices. But gold continues to defy that logic, setting new highs even as visible demand has either collapsed or turned negative across almost all segments,” said Adrian Ash, head of research at BullionVault. .