Gold's Pause May Be Just That, A Brief Respite Before Institutions Step In
Gold's price took a hit after the recent payrolls report, which saw Treasury yields rise and the dollar firm up. This led to a market reevaluation of the Federal Reserve's potential rate hike in September.
However, Tony Kim, Goldman Sachs' global head of metals trading, believes this pullback is merely an extended pause in the rally rather than its demise. According to Kim, sovereign and institutional demand has changed the market's underlying ownership structure, with official-sector demand removing supply from circulation.
Kim points out that central banks once bought around 400-500 tonnes of gold annually, but this figure is now closer to 1,000-1,100 tonnes. This increased demand, combined with annual mine supply of about 3,500 tonnes, leaves a tighter pool for other investors.
Kim's practical marker for institutional buying and sponsorship is around $4,000/oz, at which point he expects sovereign buying and support to become more visible.