Gold Caught Between Hawkish Fed and Central Banks' Record Buying

The gold market is experiencing a balancing act as it faces conflicting signals from various directions. Despite its resilience, with bullion settling at $4,168.70 per ounce on Thursday, up 1.03 percent on the day and 2.79 percent higher on the week, the metal's price action suggests that currency weakness rather than fresh physical demand is driving the latest leg higher.

The US dollar index slid 0.90 percent following Wednesday's Federal Reserve decision, with suspected intervention by Japanese authorities also contributing to its decline. A softer greenback makes dollar-denominated gold more affordable for overseas buyers, and the metal took full advantage of this situation.

The Fed's policy statement was not dovish, as it held its benchmark rate at 3.50 to 3.75 percent for a seventh consecutive month. The 9-to-3 vote marked the first three-person dissent since 2016, with Beth Hammack, Neel Kashkari, and Lorie Logan pushing for a quarter-point hike.

Central banks purchased 289 tonnes of gold in the second quarter of this year, up 62 percent year-on-year and the strongest second-quarter figure on record. However, this masks a significant revision, with first-quarter purchases slashed from an originally reported 244 tonnes to just 57 tonnes due to sales from Turkey, Russia, and Azerbaijan.

The net result is that first-half central bank buying totaled 345 tonnes, well below the 415 tonnes recorded in the same period last year. The World Gold Council now expects official-sector purchases to run below 2025 levels in the coming quarters.