By Anjana Anil and Polina Devitt

BENGALURU/LONDON- 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.

Spot gold rose to a record $2,685.42 per ounce on Sept. 26, and has gained around 29 percent so far this year – heading for the biggest annual gain in 14 years – fueled by the start of US Federal Reserve interest rate cuts and geopolitical tensions.

Gold prices were flat on Wednesday, as a firmer dollar partially offset safe-heaven demand amid heightened Middle East tensions, while investors awaited US data for further economic cues.

Spot gold held its ground at $2,659.79 per ounce yesterdfay after rising more than 1 percent in the previous session.

US gold futures eased 0.4 percent to $2,680.90.

Bullion is considered a safe investment during times of political and financial uncertainty.

“Gold benefited from safe-haven demand during a risk-off session on Tuesday. Unless tensions in the Middle East escalate further, I suspect gold to remain beneath its record high and provide choppy trading conditions as we await data,” said Matt Simpson, senior analyst at City Index.

Physical demand for gold in key markets has dropped due to high prices, with some retail consumers selling their holdings to lock in profits, industry players and analysts said.

“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.”

India, the world’s second-biggest bullion consumer after China, slashed import duties on gold in July to tackle smuggling but then saw local prices rising to all-time highs.

“Consumers are finding it difficult to cope with the price increase. Currently, we are suddenly witnessing a significant 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 prompted investors to switch to yield-bearing assets.

This year’s gold price rally has hit the demand further.

“Demand with the traders and banks has dropped by about 50 percent, while imports of newly minted bars and coins has shrunk up to almost 80 percent. The difference is covered by secondary material coming from buybacks,” said Wolfgang Wrzesniok-Rossbach, founder of precious metals consultancy Fragold GmbH.

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

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

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

Meanwhile, online marketplaces in the Western world have seen mixed activity since the Fed’s rate cut on Sept. 18 with some clients choosing to book profit, although buying is still high.

“We are seeing consumers actually buying at a higher ratio to selling than we had seen in previous weeks,” Ken Lewis, chief executive at US based online precious metals dealer APMEX, told Reuters. -Reuters