During the European session on Friday, spot gold rose by 7 US dollars in the short term, reaching $2609 per ounce, hitting a new historical high.

Analysts believe that the market's expectation of a rapid interest rate cut by the Federal Reserve is the main driving force behind this year's significant increase in gold prices. The lower borrowing costs have increased the attractiveness of non-income assets such as gold and may also devalue gold priced in US dollars.

Strong demand for gold jewelry and bars, as well as central bank gold purchases, also help support the price of gold.

According to data from the World Gold Council, India accounted for about one-third of global gold jewelry demand last year and has become the world's second-largest market for gold bars and coins. Following recent tariff reductions, Indian consumers' demand for gold jewelry and bars has surged, helping drive global gold prices to a series of new highs.

According to government data released on Tuesday, India's gold imports in August reached a record $10.06 billion. The consultancy firm Metals Focus estimates that this implies an import volume of about 131 tons, making it the sixth highest total volume in history.

With gold prices soaring - up 25% since the beginning of the year - traditionally, this has dampened the price-sensitive buyers in Asia, leading to a decrease in demand for gold jewelry in India. However, at the end of July, the Indian government reduced the gold import tax by 9 percentage points, sparking a new round of demand from the world's second-largest gold buyer.

Philip Newman, Managing Director of Metals Focus in London, said: "The impact of the tax reduction is unprecedented and incredible, it has really attracted consumers."

The reduction in tariffs is good news for Indian jewelry stores like MK Jewels located in the upscale suburb of Bandra West in Mumbai, with director Ram Raimalani stating, "Demand is very good."

On a recent afternoon, customers crowded into the store, choosing necklaces and bracelets. Raimalani expects annual sales to increase by up to 40% during the months of festivities and wedding season from September to February.

Raimalani praised the Indian government and 'Modiji'. 'Modiji' is a term of respect for the Indian Prime Minister Modi, as Modi reduced gold tariffs.

However, Harshal Barot, Senior Research Consultant at Metals Focus, stated that this demand means that domestic gold prices in India are rapidly returning to levels prior to the tax cuts.

Barot said: "The benefits of tax reduction have basically disappeared, prices are rising again, we will see if consumers will continue to buy as before."

Prior to the reduction in tariffs, jewelry purchases had been declining, according to data from the World Gold Council. In the first half of 2024, demand in India reached the lowest level since 2020.

The Reserve Bank of India has also been buying large amounts of gold, adding 42 tons of gold to its reserves in the first seven months of this year - nearly more than twice the amount purchased for the whole of 2023.

A source familiar with the Reserve Bank of India's thoughts said that gold purchases are a "regular" part of its foreign exchange reserves and currency stability management.

As the world's largest physical gold buyer, China, high gold prices mean a decrease in jewelry sales, but sales of gold bars and coins are increasing, with sales in the second quarter up 62% from the same period last year.

The World Gold Council stated regarding China, "We observe a strong positive correlation between gold investment demand and gold prices."

All of these contribute to supporting the physical market and mitigating the erosive impact of high prices on demand.

Market strategist Paul Wong of Sprott Asset Management said, "This provides a stable foundation for demand. In some parts of Asia, gold is easily convertible into currency," he added, making gold a popular choice for savings.

The demand from Western investors is also an important factor driving the rise in gold prices, with net inflows into gold-backed exchange-traded funds reaching $7.6 billion over the past four months.

After reaching a new high on Wednesday, analysts warn that gold prices may experience a pullback.

Adrian Ash, Research Director at the online gold trading platform BullionVault, said, "When you have such long expectations of interest rate cuts, there is a lot of room for disappointment. I believe that precious metals, like other assets, have room for a pullback."

Regardless of whether the gold price falls from its historical highs, Raimalani of MK Jewels believes that during the upcoming wedding season, the demand for jewelry in India may continue to remain strong.

He mentioned that the soaring gold price did not deter his customers from making purchases. "For Indians, when prices rise, they are happiest because they already own a lot of gold. It's like an investment."