Gold's Split Market Central Banks Buy While Speculators Exit

Gold is experiencing a sharp divide in market sentiment, with central banks increasing their holdings while speculative investors pull back. In September, exchange-traded funds (ETFs) accumulated over 70 tonnes of gold, while COMEX traders reduced their exposure by 84 tonnes. Spread positions also shrank by 156 tonnes, highlighting a significant retreat from the metal by short-term investors.

Central banks remain a key support for gold, driven by geopolitical risks and fiscal uncertainties. Bundesbank President Joachim Nagel emphasized gold's role in reserve diversification, noting its immunity to counterparty risks and sanctions. Gold now represents nearly 25% of global central bank reserves, up from 14% in 2023, though some of this increase reflects price appreciation. A World Gold Council survey found that 45% of monetary authorities plan to boost their gold holdings over the next year.

However, rising U.S. Treasury yields are pressuring gold prices, as the metal offers no yield. Despite a softer-than-expected jobs report, long-dated yields remain high, contributing to a 6.7% drop in gold's value since the Federal Reserve's last rate hike. Sergio Nicoletti Altimari of Banca d'Italia noted that gold's traditional inverse relationship with real yields has weakened due to strong demand from central banks.

Spot gold was trading at $4,131.95 an ounce on Tuesday, down slightly but still above the $4,000 mark. Analysts attribute the price floor to continued physical demand, including China's imports of 1,077 tonnes in the first eight months of 2024. UBS analyst Giovanni Staunovo pointed to rising U.S. government debt as a long-term factor favoring gold, while Kyle Rodda of Capital.com highlighted geopolitical risks and rate expectations as near-term catalysts.