China's Gold Bets and Middle East Disruptions Fail to Lift Gold Prices
The recent escalation of conflict in the Middle East has led to increased oil prices and higher interest rate expectations, pushing gold prices down by nearly a fifth since the strikes on Iran began in late February.
Oil prices have risen due to disruptions in tanker traffic through key waterways such as the Strait of Hormuz, where tankers normally carry around 20% of the world's seaborne oil. However, gold prices have not responded accordingly.
The reason for this anomaly lies in the rising interest rate environment, which makes gold less attractive to investors seeking higher returns from fixed-income instruments.
China has been increasing its gold reserves, buying 15 tonnes of gold in June and adding 40 tonnes in the first half of the year. This accumulation is particularly significant as it shows that China's central bank is betting on a long-term increase in gold prices, according to John Paulson, who forecasted this trend.
The gold miners are also benefiting from the current price level, with many producing at all-in sustaining costs below $2,000 and generating strong free cash flow. This has led analysts to expect significant share repurchases and buybacks from major producers such as Newmont and Barrick.