Gold demand in China has been dampened by record prices for the precious metal, with sales at domestic jewelers slumping and consumers holding off on purchases.

The China Gold Association said in a quarterly report that total gold demand in the first half of this year fell nearly 6% from the same period last year to 524 tons. According to data, jewelry purchases plummeted by 52% in the second quarter.

This is a huge shift from the first three months of the year. At that time, China's central bank and domestic consumers used gold as a hedge due to the long-term downturn in the real estate market and stock market fluctuations, pushing gold prices to record highs. The People's Bank of China halted purchases in May and June after an 18-month buying spree.

It is now clear that high prices and a weak Chinese economy are affecting sales of discretionary items such as jewelry. However, upcoming Federal Reserve interest rate cuts and increased safe-haven demand due to geopolitical uncertainty, including the U.S. presidential election in November, are still driving global gold prices higher.

The association said jewelry purchases fell 27% in the first half. This was partially offset by a 46% annual increase in gold bar and coin sales. The association said jewelry commands a premium over gold bars and coins. Data in the report includes jewellery, gold bars and coins and industrial consumption, but excludes central bank purchases.

Goldman Sachs Group Inc. analysts said in a report last week that the recent rise in gold is suppressing cyclical consumption in China. However, rising demand due to weakening confidence in the economy and lower interest rates is roughly offsetting the impact of lower revenue.

Gold retailers targeting the Chinese market, including Chow Tai Fook Jewelery Group, reported sharp sales declines in the quarter to June, while China's gold imports also fell sharply last month.

Last week, the atmosphere was somber at a jewelry store in downtown Shanghai.

"It's a slump, our sales here are very poor," said a salesperson surnamed Zhang, who declined to give her full name when referring to the company. "It has to do with the surge in gold prices, but also with falling personal incomes," she said. "Gold is not a necessity."