Gold Prices Fall as Rates Rise, But Bull Market Remains Intact

Gold prices took a hit after a strong US jobs report sparked a rise in Treasury yields and a firmer dollar, forcing investors to reconsider their bets on when the Federal Reserve will next raise interest rates.

However, Goldman Sachs' global head of metals trading Tony Kim believes that this pullback is merely a pause in the bull market for gold, rather than its end. According to Kim, sovereign and institutional demand has increased significantly, with central banks buying around 1,000-1,100 tonnes of gold annually, compared to just 400-500 tonnes previously.

This structural bid beneath gold has not gone away, despite the near-term headwinds from rising rates. In fact, Kim sees this as a sign that official-sector demand is removing supply from circulation, making it harder for gold prices to drop significantly.

Kim's marker for the level of institutional buying is around $4,000/oz, at which point he expects sovereign and institutional sponsorship to become more visible. The coming CPI report will be a key test of this thesis, as a firm inflation print could push rates higher again and give the dollar another lift.

However, if the market starts to look through the immediate Fed repricing, the post-payrolls mini-washout may end up being less a collapse of the gold thesis than a repositioning.