Gold Squeeze: Rate Hawks and Central Bank Buyers Collide

The gold market is experiencing an unusual squeeze as it faces two opposing forces: rate hikes from the Federal Reserve and central banks' persistent buying. The metal has been hoarded by central banks with almost mechanical regularity, but a surprisingly resilient US jobs report has prompted traders to price in a higher probability of a September rate increase.

This has raised the opportunity cost of holding gold, as it yields nothing, and every tick higher in borrowing costs makes it less attractive. The technical picture reflects this tension: the relative strength index (RSI) sits at a neutral 47, while the price has drifted about 3.7 percent below its 200-day moving average.

However, for every seller spooked by the Fed, there appears to be a buyer with a much longer time horizon. China added to its gold reserves again in August, lifting its holdings to 76.73 million troy ounces. Central banks worldwide purchased 289 tonnes in the second quarter of 2026, part of a total demand picture of 1,269 tonnes.

According to Metals Focus, investment demand has overtaken jewellery as the primary driver of gold purchases for the first time on record. In 2025, investment of 2,175.3 tonnes dwarfed jewellery demand of 1,638.0 tonnes, with physical bars and coins becoming the largest single demand category.