Gold Prices Fall 3% Amid Higher Rate Expectations and Record Central Bank Buying
Gold prices took a 3% hit in recent days after Federal Reserve Chair Kevin Warsh's Jackson Hole address, which saw the probability of a September rate increase rise above 40%. The decline comes despite record central bank buying, with a net 289 tonnes of gold purchased in the second quarter of this year. This represents a 62% year-over-year increase and is the strongest second-quarter total on record.
Central banks continued to buy gold even as the average London Bullion Market Association (LBMA) price fell 8% below the first quarter's record. This suggests that official demand increased during the price correction. The World Gold Council identified Poland, China, Uzbekistan, Kazakhstan, and the Czech Republic among the quarter's largest official buyers.
The decline in gold prices also coincided with higher real yields, which increase the opportunity cost of holding gold. Higher policy-rate expectations can raise real yields and redirect capital toward interest-bearing government debt, placing downward pressure on gold prices.