Gold Market Under Siege: Sanctions vs Record Central Bank Buying

The gold market is experiencing a rare two-front battle, driven by opposing forces that are normally in conflict. On one side, supply-chain sanctions are threatening to disrupt physical trade between East and West. The London Bullion Market Association has suspended two Chinese refineries, Shandong Gold Smelting and Hunan Shuikoushan Nonferrous Metals Group, from its Good Delivery lists due to their involvement with the Uyghur Forced Labor Prevention Act.

The China Gold Association has responded strongly, accusing both the US and LBMA of using the UFLPA designation as a tool for targeting China's gold industry. This escalation comes at a delicate time, with geopolitical tensions already running high. Any further suspensions could exacerbate the fragmentation of physical bullion flows between the West and China.

On the other side of this battle, central banks are accumulating gold at an unprecedented pace. According to the World Gold Council, they added 289 tonnes in the second quarter of 2026, a record for that period. The People's Bank of China was particularly active, purchasing 33 tonnes and extending its remarkable streak of 21 consecutive months of accumulation.

Total global gold demand reached 2,522 tonnes in the first half of 2026, up 2 percent year on year. However, this increase is driven by a shift in composition, with bar and coin purchases surging 42 percent to 474 tonnes in Q1. Private demand is also stepping in, as investors and savers increasingly displace traditional consumers.

The market positioning has turned decisively bullish, with traders rotating out of hedging positions and into speculative long positions. This conviction is supported by the monetary policy backdrop, which remains uncertain under Fed Chair Kevin Warsh's leadership. The immediate catalysts are monetary rather than geopolitical, with Fed Chair Warsh set to speak at Jackson Hole on August 28.