A record wave of official-sector buying is reshaping the gold market, but experts warn that the metal may not protect reserves from every shock.

Gold is once again rising sharply amid a combination of economic, political, and geopolitical factors. Demand from central banks, which are increasing their precious metal reserves, remains particularly notable.

After several weeks of fluctuations around $4,000 per ounce, the price of gold has risen by approximately $400, or 10%, since the beginning of August. If the pace continues, the month could become the market’s most successful in the 21st century. The last time gold gained 13% or more in a single month was in September 1999.

Among the reasons for the latest price surge are the US Federal Reserve’s decision to keep interest rates unchanged, weaker employment figures, and subdued inflation. These factors weakened expectations of rate hikes and put pressure on the dollar, which traditionally supports gold prices.

At the same time, the market is reacting not only to macroeconomic data. Renewed escalation in the war between the United States and Iran, uncertainty over peace agreements, and concerns about the Fed’s independence have increased investor interest in safe-haven assets.

Additional pressure came from tensions in the US bond market. Yields on 10-year US Treasury securities rose to their highest level in 18 months. Yields on 30-year bonds and 30-year inflation-protected securities reached their highest levels since 2007 and 2008, respectively.

Central banks are also continuing to reduce their holdings of US government bonds kept in accounts at the Federal Reserve Bank of New York. Their volume has fallen to its lowest level since 2012.

The United States is now at a stage where the global benefits of seigniorage gained from supplying the world with a reserve currency have already been exhausted; the next stage, which may already have begun, concerns what happens when foreign official holders of your liabilities become increasingly nervous about holding them.

– Phil Suttle

Central banks step up gold purchases

Demand from monetary authorities rose sharply in the second quarter after a relatively weak start to the year. According to the World Gold Council, central banks’ net purchases totaled 289 tonnes in April-June. This was more than five times the figure for the previous three months and a record for the second quarter.

Deutsche Bank analysts estimate that, at average market prices, central bank demand for gold reached a record $45 billion in the second quarter.

A survey of central banks conducted in June found that 45% of respondents plan to increase their gold reserves over the next 12 months. This is the highest figure recorded in the history of the survey.

China’s central bank was among the most active buyers. In July, it made net purchases of 20 metric tonnes of gold, 0.9% more than a month earlier. This was the largest monthly increase both in tonnage and percentage terms since October 2023.

Thanks to its July purchases, China’s gold reserves reached a record 2,377.5 tonnes.

China is once again significantly increasing its reserves. Gold is not solely a Fed signal, but sustained official-sector demand and renewed investor interest are reinforcing the importance of tools that protect against inflation, currency risks, and geopolitical shocks.

– BNY analysts

Does gold remain an unconditional safe-haven asset?

Despite record purchases, central banks are unlikely to follow the current rally unconditionally. The high volatility experienced by the gold market in recent years has changed attitudes toward the metal even among the most conservative investors with long-term horizons.

The International Monetary Fund emphasizes that gold does not always provide protection against risks and should not be regarded as a tool for maintaining reserve liquidity.

Central banks should treat gold as a high-risk reserve asset and link decisions on gold accumulation to strategic asset allocation and thorough policy analysis.

– authors of the International Monetary Fund study

Despite these warnings, weakening confidence in traditional reserve assets continues to support gold’s appeal. For central banks, it remains an important component of reserve diversification amid currency and geopolitical uncertainty.