Central Banks Stand by Gold Amid Rising Bond Yields and Geopolitical Risks

Central banks remain committed to holding gold as a reserve asset, despite rising bond yields making interest-bearing assets more appealing. At the LBMA/LPPM Conference in Sorrento on October 5, officials emphasized gold's role as a safe-haven asset amid geopolitical risks and high public debt levels. Sergio Nicoletti Altimari, Deputy Governor of the Bank of Italy, highlighted gold's continued importance as a hedge against uncertainty. Joachim Nagel, President of the Bundesbank, noted that diversification into gold remains necessary despite the growing attractiveness of higher-yielding bonds.

Since 2022, there has been a structural shift in central bank gold demand, particularly in emerging economies. Nagel attributed this trend to credit risks from high public debt and evolving geopolitical factors. However, forecasts suggest a 15% drop in central bank gold purchases in 2026, bringing demand to around 720 tons. In China, demand for gold bars and coins surpassed jewelry demand for the first time in 2025, signaling a shift in investment preferences.

Short-term gold prices continue to be influenced by U.S. Treasury yields and Federal Reserve policy expectations. Following a weaker-than-expected U.S. jobs report on October 2, the likelihood of a Fed rate hike in October decreased. However, elevated longer-dated Treasury yields and higher energy prices have pressured gold prices, which fell 6.6% in September to $4,152.86 an ounce. Despite this, global gold ETFs saw inflows of over 70 tons, indicating sustained investor interest.