Gold (XAU/USD) prices rose on Wednesday, continuing to recover from Monday’s sell-off prompted by the People’s Bank of China’s (PBoC) decision to halt gold purchases. Data showing robust global central bank demand for gold has offset the negative impact of the PBoC’s extended buying pause.
Despite the PBoC ceasing its gold acquisitions in June, following a similar halt in May after an 18-month buying spree, other central banks have continued to purchase gold. This sustained demand has helped stabilize and support gold prices.
Powell’s Testimony and Market Reaction
Gold prices remained resilient despite Federal Reserve Chairman Jerome Powell’s testimony to the Senate Banking Committee on Tuesday. Powell did not specify when the Fed might start cutting interest rates, emphasizing a data-dependent approach instead. This should have weakened gold, as delays in rate cuts could mean higher borrowing costs for longer, making non-interest-bearing assets like gold less attractive.
However, Powell’s acknowledgment of progress on inflation and the balanced risks of waiting too long or acting too soon provided some reassurance to the market. His statements suggested that while immediate rate cuts might not be on the horizon, neither are additional rate hikes.
Central Banks Continue to Buy Gold
On Wednesday, gold traded in the $2,370s, driven by ongoing purchases from central banks around the world. India’s central bank added more than nine tons of gold in June, the National Bank of Poland increased its reserves by four tons, and the Czech National Bank raised its reserves by two tons.
“Other central banks continue to participate, with India’s central bank buying more than nine tons of gold in June, the National Bank of Poland increasing its gold reserves by four tons, and the Czech National Bank showing that its gold reserves rose by some two tons in June. It is quite evident that the official sector is much broader than just the PBoC,” said Bert Melek, Head of Commodity Strategy at TD Securities.
Future Outlook
Bert Melek of TD Securities remains optimistic, projecting that the absence of Chinese purchases will not prevent gold from reaching TD’s target price of $2,475 by the first quarter of 2025. The continued buying from other central banks underscores the broader demand for gold as a hedge against economic uncertainty and inflation.
