Central Banks Fuel Gold Rally Amid Hormuz Diplomacy

The price of gold surged to $4,294.60 per ounce on Wednesday, but this is only part of the story behind its recent rally.

A diplomatic breakthrough in the Strait of Hormuz negotiations between the US and Iran has driven oil prices down, making gold more attractive as an investment option. This comes at a time when central banks are buying up gold at a record pace, while private investors are selling.

The World Gold Council's latest 'Gold Demand Trends' report shows that central banks purchased 288.9 tonnes of gold in the second quarter, a 62.4% increase from the same period last year. Poland led the charge with 51 tonnes, followed by China and Uzbekistan. However, Russia sold 22 tonnes during this time due to budget pressures.

The central bank buying spree is remarkable given that gold prices fell around 16% during the quarter. Private investors, on the other hand, have been selling off gold ETFs, with net outflows of about 45 tonnes in Q2. Jewelry demand also suffered, falling 17% year-on-year to 278 tonnes.