Gold Finds Higher Floor as Central Banks Diversify Reserves

Gold prices have found a new equilibrium despite recent rate hikes by the Federal Reserve. The metal's long-term price is no longer solely dependent on US interest rates, but rather has multiple sources of demand driving its value.

Central banks are increasingly buying gold as a reserve asset, motivated by concerns over currency and geopolitical risk. China's People's Bank of China purchased 20.2 tonnes in August, the largest monthly addition since October 2023, bringing official holdings to 2,387 tonnes.

This shift is driven by growing recognition that reliance on one reserve currency, the dollar, poses a significant risk. The International Monetary Fund has noted that Asian economies are developing alternative channels for trade and finance as geopolitical fragmentation grows.