Gold Prices Poised to Rise as Real Yields Fall and Central Banks Buy

The outlook for gold has improved significantly in recent months due to various factors. One of the key drivers is the direction of real yields, or inflation-adjusted interest rates. When real yields fall or are expected to remain contained, the opportunity cost of holding non-yielding assets like gold declines, potentially supporting demand.

Recent weaker US labour-market signals have helped cap real yields, while shifts in expectations around interest rates have provided support to gold. A softer US dollar can also make gold more attractive and has been one of the factors supporting its recent advance.

Central-bank buying has emerged as another important pillar of the longer-term gold story. China has been particularly notable, with the People's Bank of China buying 20 tonnes of gold in July, its largest monthly purchase since October 2023, extending its buying streak to 21 consecutive months.

According to J.P. Morgan's strategists, momentum buying, weaker labour-market data and renewed debasement concerns have contributed to gold's move above $4,400. For gold to reach the bank's $5,000 mid-2027 target, the interplay between real yields, the dollar, central-bank purchases and investment demand will remain crucial.