Gold Price Slides Amid Central Bank Buying Spree

The gold market is experiencing a divergence between its price chart and demand picture. On one side, the metal's price has been sliding, closing at $4,098.60 per ounce on Friday, down 1.54 percent from the previous day, and remaining 5.41 percent lower since the start of the year.

This decline in price is partly attributed to the Federal Reserve's recent policy meeting, where the central bank held its benchmark rate steady in the 3.5 to 3.75 percent range. The decision was not unanimous, with three regional bank presidents pushing for a 25-basis-point hike, and Fed Chair Kevin Warsh reaffirming the 2 percent inflation target but offering little clarity on the path ahead.

The dollar's reaction to the meeting did gold no favors, jumping roughly 0.5 percent on Friday after losing 2.4 percent the previous day, making it more expensive for investors to hold bullion and eroding its appeal. Market pricing now reflects roughly 63 to 65 percent odds of a September rate increase, according to the CME FedWatch tool.

However, the World Gold Council's second-quarter demand report paints a different picture. Central banks added a net 289 tonnes of gold during the quarter, the strongest Q2 on record, up 74 percent year over year. Poland led the charge with 51 tonnes, followed by China with 33 tonnes.