Gold Market Faces Tug-of-War Between Central Banks and Federal Reserve
The gold market is currently facing a tug-of-war between competing forces. On one hand, central banks are continuing their buying spree, purchasing 288.9 tonnes of gold in the second quarter, a 62.4 percent surge from the same period last year.
According to the World Gold Council, Poland led the pack with 51 tonnes, while China added another 33 tonnes to its holdings. Beijing's buying streak now stretches to 22 consecutive months, with reserves climbing to 76.73 million fine ounces as of August.
A survey by the World Gold Council found that 45 percent of institutions plan to increase their gold reserves over the next twelve months, the highest proportion recorded since 2018. This structural demand is running headlong into a more challenging monetary backdrop, with a Federal Reserve governor signaling last Friday that rates would remain unchanged.
The catalyst for this was a US jobs report that landed well above forecasts, nonfarm payrolls expanded by 162,000 positions in August against expectations of just 56,000. The market is now assigning roughly 60 percent probability to a rate hike at the Fed's September meeting, which could dim gold's appeal relative to interest-bearing alternatives.