DO CENTRAL BANKS KNOW SOMETHING WE DON’T?
The first important event this week will be the Fed minutes, which will be released on Wednesday. Economic data from China, one of the world’s two largest economies, is not very strong. But the picture is different when it comes to gold. In the first half of the year, China’s gold imports were 138% higher than in the same period last year. So, even though demand from the jewellery sector is weak, demand from investors and central banks remains strong. At the same time, the fast rise in prices is also creating some short-term profit-taking. In fact, today we are seeing a small pullback across all precious metals.
The question from last week is still on the table: What will oil do? The future of the ceasefire between the US, the other major power, and Iran remains uncertain. The US is preparing new sanctions, while military tensions in the region continue. For gold, there are two different effects here. Geopolitical risk supports safe-haven demand, while a sharp rise in oil prices could bring inflation concerns back and limit the Fed’s room to act. So, the most comfortable scenario for gold is still the same: geopolitical risk remains, but oil prices do not get out of control.
Gold moved above $4,400/oz yesterday and is trading around $4,399.9/oz today after a small pullback. The daily loss is around 0.4%. For now, this move can be seen more as profit-taking after the recent rise rather than a change in trend. A weaker dollar, Fed expectations, central bank buying and geopolitical risks are still supporting gold. The correction in silver is a little stronger. Silver is trading around $65.13/oz, down about 1% on the day.
Platinum is trading around $1,754/oz, down about 0.9% today. Palladium is around $1,322/oz, with a daily loss of about 0.2%.
Today’s pullback in precious metals is not very surprising after the strong rise in recent days. In the short term, the Fed minutes and the balance between Hormuz and oil prices will continue to guide the market. But in the long term, there is a bigger question: Why are central banks still buying gold? Maybe it is no longer enough to explain gold’s rise only with interest rates, the dollar or geopolitical risks. Central bank demand for gold brings us back to a more basic question: What gives money its value, and where do investors turn when confidence falls? When confidence is questioned, the market’s answer has remained almost the same for centuries: Gold.