Gold prices
are undergoing a normal consolidation phase after gold’s record-setting rally. This consolidation phase is typical after significant price surges, as the market adjusts to new levels and investors reassess their positions.One of the common themes we cited as drivers of the recent gold bull run, which started in 2022, was the central bank influence. These institutions have been on a gold-buying spree, further bolstering the value of their combined holdings. The worries about the trade war are lifting. As a result, safe haven demand for gold has faded, resulting in the price pullback we’re seeing now.
Bullion tumbled as much as 1.6% and is off roughly 6% since peaking above $3,500 an ounce. Even with the recent drop, gold’s strong performance this month has eclipsed nearly every other major asset class, leading to comparisons with the skyrocketing cryptocurrency bitcoin. It’s in this context that President Donald Trump’s tariff war, the impact of which is still being felt, fundamentally altered the global economic landscape.
Central Banks Fuel Gold's Ascent
Central banks were instrumental in kicking off the new gold bull run that started in 2022. In concrete terms, developed market (DM) central banks were especially active, adding considerably to their gold reserves. Their gold reserves suddenly appreciated to $1.3 trillion. This would be a historic leap from under $700 billion since 2022.
Emerging market (EM) central banks were a big driver behind this trend, gold making up their record high $370 billion in gold holdings. Central banks are in the midst of a historic gold buy spree. Aside from saving with purpose, this strategy helps to diversify their reserves and protect against economic uncertainties. That steady upward pressure from these institutions made for a great base layer of support for the gold rally.
Together, these actions by central banks can send a powerful signal of a long term bullish view of gold as a valuable asset. These institutions are increasing their gold holdings to protect themselves. This acquisition reflects their deep conviction in gold’s unique capacity to preserve its value in times of economic chaos. It was central banks that continued to provide robust demand for gold. This continued demand has played a large part in gold’s strength over the last several years.
Market Reactions and Investment Trends
One of the biggest changes we’ve seen since the gold rally began is how it’s shifted the market participants and investment product landscape. Initially this week, New Gold’s shares were up as much as 19%. This extraordinary increase came in the wake of a hard-won, $300 million acquisition. The deal was primarily about acquiring the 19.9% free cash flow interest in the New Afton mine. This smart move indicates extremely bullish market optimism regarding the future growth opportunities of the company.
Retail investors, especially those located in Asia, have been largely influential in fueling greater gold demand. A year after China and other mainly Asia-based retail investors in ETFs ramped up their gold purchases, buying of U.S. gold ETFs has picked up too. Retail investors further display unprecedented interest in Asian and U.S. markets. This trend underscores gold’s universal allure as a safe haven asset.
That said, most of the gold market hasn’t seen growth across the board. In 2022, demand for gold jewelry continued to suffer a heavy blow – down 26.85% YoY to 134.531 tons, marking the lowest level since 2009. Meanwhile, demand for gold bars and coins jumped 29.81% on-year to 138.018 tons. Industrial and other gold demand saw a minor dip as well, dropping 3.84% y-o-y to 17.943 tons.
Economic Uncertainty and Precious Metals Performance
This recent volatility correlates closely with rampant overall economic and geopolitical uncertainty. These are the heightened uncertainties stemming from the trade war and fears of a global growth slowdown. Tensions from the trade war have subsided, reducing the demand for gold as a safe-haven asset. This evaporation of demand is what’s causing gold prices to pull back right now. Yet the recent threat of renewed trade tensions or other macroeconomic shocks show how quickly demand for gold can be rekindled.
Luxury goods firms—including LVMH—are warning of imminent hit to their sales growth. These warnings underscore increasing concerns about the state of the economy more broadly. In so doing, these warnings highlight how the various sectors of our world are deeply connected. They demonstrate the pernicious impacts on consumer spending and investment decisions of economic uncertainty.
As far as precious metals performance this week, silver fared worst of the metals, with a fall of 3.43%. Palladium, by contrast, was the week’s strongest precious metal, rising 1.85%. These divergent performances are a product of the different supply-demand dynamics and end-use markets for each metal.