The Impact of Rising Gold Prices on Physical Demand
The gold price rally in 2024 has significantly affected the physical demand for gold, especially in key markets like India, China, and Europe. In fact, as gold prices have soared to record highs, many consumers have opted to sell their holdings rather than continue purchasing. As a result, the demand for physical gold has declined sharply.
For instance, on September 26th, spot gold prices hit a record $2,685.42 per ounce, a 29% increase this year. This rally is being driven by multiple factors, including U.S. Federal Reserve interest rate cuts and rising geopolitical tensions. However, despite the price surge, physical demand remains weak.
The Situation in India and China
India, the second-largest consumer of gold after China, has seen its demand drop. This decline started after the Indian government slashed import duties in July. Although this initially caused a temporary spike in demand, local prices quickly rose to all-time highs, further reducing consumer interest. Prithviraj Kothari, president of the India Bullion and Jewellers Association, noted that many consumers are now struggling to keep up with the increasing prices.
In China, the world’s largest gold market, the situation is also dire. Gold imports from Switzerland fell to zero in August for the first time in 3-1/2 years, showing the extent of the weakened demand. Although demand for paper and physical gold had been strong in the past, recent months have seen a slowdown, especially as prices continue to climb.
Europe and Online Gold Market Trends
In Europe, Germany remains the largest market for physical gold investments. However, high interest rates have prompted investors to shift towards yield-bearing assets, further weakening gold demand in the region. Germany and Austria, in particular, have experienced drastic declines in physical gold purchases, with some experts noting that imports of newly minted bars and coins have dropped by up to 80%.
Online platforms are also showing mixed results. While some consumers are selling to book profits, others are buying more gold, capitalizing on price fluctuations. Ken Lewis, CEO of APMEX, mentioned that they have observed more buying than selling. Similarly, Gold Avenue has reported a 66% increase in purchases after the Federal Reserve’s rate cuts in September.
Overall, the gold price rally continues to defy expectations, pushing prices higher even as visible demand weakens. This phenomenon may persist in the near term, with experts keeping a close watch on further price movements and their impact on the global gold market.
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