Don't Ignore the Power of Central Bank Demand Amid Gold's Rise to $4,000/tfl ounce
Global gold prices hit a new record above $4,000 per troy ounce during the Asian session, driven by surging demand from global central banks and growing global economic uncertainty. This surge marks a sharp strengthening since the beginning of the year, reflecting a major shift in various countries' foreign exchange reserve strategies.
According to a World Gold Council report, in the first quarter of 2025, net gold purchases by central banks reached approximately 244 tons, with the majority of demand coming from emerging economies such as China, Poland, and Turkey. This figure remains well above the historical average and extends a four-year streak of large-scale purchases by global monetary institutions.
This central bank move is driven by a desire to reduce dependence on the US dollar and increase reserves in safer real assets amid geopolitical tensions and inflation risks. In the Central Bank Gold Reserves Survey 2025, 95% of respondents stated that they would increase their gold reserves in the next 12 months, reflecting the belief that gold remains the most stable hedge.
In addition to institutional demand, the rise in gold prices was also driven by "safe haven" sentiment stemming from the fiscal crisis in the United States, the potential for a global recession, and political uncertainty in several key regions of the world. Retail and institutional investors followed the lead of central banks, increasing buying flows in both the spot and futures markets.
Massive purchases by central banks not only increased physical demand but also had a significant psychological impact on the market. When global monetary institutions trusted gold as a long-term store of value, the market interpreted this move as a strong signal to maintain long positions. As a result, price momentum continued, reaching the $4,000 per troy ounce level.
Analysts estimate that as long as the de-dollarization trend continues and global economic uncertainty persists, gold prices have the potential to remain high in the medium term. Furthermore, expectations of further interest rate cuts by the Federal Reserve have strengthened gold's appeal, especially as US bond yields have tended to weaken.
The rise in gold prices also had a domino effect on other commodity markets. Global silver and oil prices also strengthened, while the US dollar slightly corrected from its peak as investors shifted to hedge assets. This situation demonstrates how central bank reserve strategies have been a key driver behind gold's spectacular rally in 2025.
However, a combination of dollar strengthening, rising yields, geopolitical easing, and profit-taking could be the main causes of gold's correction in October. However, the long-term trend remains positive as long as macro fundamentals (inflation, global uncertainty, and central bank policy) support hedge assets.
Source: Newsmaker.id
