Gold Finds Strong Support in Central Bank Demand

Gold's investment case is more structural than crisis-driven, according to Arabian Gulf Capital. The firm holds gold strategically at 3% to 5% of a portfolio, through the cycle rather than as a short-term trade.

The central-bank demand for gold provides a floor for prices, while Western investor demand offers potential upside. Real yields are the key trigger for these flows: when they decline, the opportunity cost of holding gold falls, making it more attractive to investors.

Central banks have increased their purchases in recent years, buying over 1,000 tonnes in three out of four years between 2022 and 2025. Poland added 82 tonnes in the first half of this year, while China added 40 tonnes, its largest quarterly addition since 2023.

Western investors play a different role, with ETF flows responding more directly to real yields. A higher real yield increases the opportunity cost of holding gold, but when it declines, that cost falls, making gold relatively more attractive and potentially drawing Western investors back into the market.