Central Banks Boost Gold Demand Despite Weakening Prices

Gold prices have been under pressure in recent weeks due to rising US Treasury yields and expectations of further interest rate hikes from the Federal Reserve. Despite a modest gain of 0.5% on Friday, gold finished the week at $4,288.69 an ounce, down 6.7% over the past month.

The sharp climb in long-dated US Treasury yields has burnished the appeal of dollar-denominated fixed income at the expense of gold, which pays no coupon. The recent softness in gold prices is also attributed to resilient business activity and stubborn price pressures, which convinced traders that the Fed may have to tighten further.

However, central banks continue to buy gold as a hedge against inflation risks and geopolitical tensions. According to data from the World Gold Council, central banks purchased a net 23 tonnes in July, led by China with 20 tonnes and Poland with eight. This trend is expected to continue, with Goldman Sachs predicting that official-sector buying will average 50 tonnes a month this year.