Central Banks Anchor Gold Price as Silver Exposes Rate-Sensitive Demand

Gold's price has seen significant fluctuations in recent months, with its January intraday record of $5,595.47 being the steepest quarterly decline in 13 years.

The gold price fell by 28% from this peak but remains roughly 25% higher than a year ago and near the World Gold Council's fair-value estimate of $4,100 ±5%, based on its July outlook.

There are two types of buyers driving the gold market: rate-sensitive investors (Western ETF allocators) who sold hard from May and rate-insensitive central banks, led by China's People's Bank of China, which has bought gold for 20 consecutive months.

The hawkish Federal Reserve cut its 2026 rate-cut projection from two to one, crushing the first group's bid but not affecting the second's. Silver, with an entirely rate-sensitive demand base, fell 52% under the same policy shock.

A rotation story is underway in gold, with its decline being met by a structural buyer: central banks' reserve diversification driven by sanctions risk and dollar-weaponisation concerns.