Major investment banks, including Societe Generale and Schroders, are re-entering the gold market, with Societe Generale strategists noting that gold has climbed back toward $4,500 per ounce after earlier declines. They trimmed their gold exposure in the first half of the year but now find the asset compelling again. Market turbulence has eased, speculative positioning has risen, and the put/call ratio for the GLD fund has dropped to a six-month low, indicating a resurgence of optimistic trading sentiment.
Schroders also upgraded gold to positive in its latest multi-asset outlook, having re-established a position after taking profits in May. The firm cited elevated real yields, renewed institutional demand, and cleaner positioning among fast-money investors. Additionally, structural buying from central banks and China, alongside persistent concerns over inflation, sovereign debt, and currency stability, were identified as key drivers.
Gold is also being supported by tempered hawkish Federal Reserve bets. Following comments from Fed Governor Christopher Waller, who expressed confidence in decelerating price pressures, the odds of the Fed hiking interest rates in September have diminished to 50% from 63.2%. Waller indicated he would lean towards holding policy rates steady if August CPI data confirms cooling inflation.
Central banks continue to be significant gold holders, with net purchases of 23 tonnes in July. China and Poland led these purchases, adding 20 tonnes and 8 tonnes respectively. Year-to-date, Poland has bought 90 tonnes and China 60 tonnes, with China's official gold reserves now at approximately 2,366 tonnes. The World Gold Council reports that central banks added 1,136 tonnes of gold worth around $70 billion to their reserves in 2022, the highest yearly purchase on record, with emerging economies like China, India, and Turkey increasing their holdings.
Analysts from Societe Generale believe that the financial markets have largely priced in most of the Fed’s hawkish policy reassessment, improving gold’s risk-reward profile. They also note that gold's behavior since 2022, staying near historical highs despite positive real yields, suggests a break from traditional pricing models. Continued central bank purchases, de-dollarization trends, geopolitical uncertainties, and sovereign debt concerns are seen as creating a strong floor for gold prices, effectively limiting downside risks.
