Gold Price Finds Support Amid Softer Inflation and Reduced Rate Hike Probabilities

The gold price has been supported by two distinct types of buyers in recent months. European ETF investors have returned to the market after two months of withdrawals, contributing $3 billion in July inflows. This shift in positioning is significant, as it reflects a change in asset allocation among institutional investors and wealth managers.

The Bank of China's 20-ton purchase is another key source of support for gold prices. The central bank has been buying gold for 21 consecutive months, with its largest monthly addition since October 2023. This behavior suggests that countries accumulating gold are seeking greater diversification away from dollar-denominated reserve assets.

The softer inflation reading in July may also be contributing to the gold price's rise. Headline inflation eased slightly from 3.5% to 3.4%, reducing the implied probability of another Fed rate hike from 49% to 32%. Gold is highly sensitive to expectations for real interest rates rather than inflation alone.