US Fiscal Worries Fuel Gold Rebound as Central Banks Remain Key Buyers
Gold prices have rebounded from their January record after concerns about US fiscal strength emerged as a new catalyst. Central banks remain key buyers, with China and Poland leading the way in the second quarter. Physical demand is also showing signs of renewed strength, thanks to strong Chinese imports and infrastructure development.
The August rally was driven by a weaker dollar, geopolitical uncertainty, and monetary policy expectations. The US Treasury's decision to increase purchases of longer-dated government bonds aimed at reducing yields briefly pushed them lower and weakened the dollar. This reinforced the 'debasement trade,' where scarce assets like gold or Bitcoin are held as hedges against rising debt and potential currency weakness.
Despite supportive fundamentals, analysts caution that the outlook is uncertain. Gold remains 18% below its record high posted in late January, after a retreat of over 25% between the January high and July low.