Gold's August Paradox: Central Banks Hoard While the Fed Hawks Circle

Gold dips 4.8% on week amid Fed hawkish signals, but central bank buying hits record Q2, with Poland and China leading.

Gold's spot price is caught in a tug-of-war between two opposing forces: a Federal Reserve signaling tighter policy ahead and a central-bank buying spree that shows no signs of cooling. The metal traded at $4,430.98 per ounce on Monday, down 0.5 percent on the day and 4.8 percent lower on the week, extending a slide that began after Fed Chair Kevin Warsh's hawkish Jackson Hole appearance.

The sell-off gathered pace after Warsh's remarks signaled a stricter monetary stance, while a fresh US military strike in the Strait of Hormuz over the weekend pushed oil prices higher and prompted some investors to liquidate bullion positions even in a geopolitically tense environment. The metal now sits roughly 20 percent below its 52-week high of $5,598.58, reached in late January — though it remains 30 percent above last September's twelve-month low of $3,437.07.

Central Banks Are Buying Like It's 2022

The price weakness, however, masks a remarkably resilient structural picture. Central banks purchased a net 288.9 tonnes of gold in the second quarter — a 62 percent jump year-on-year and the strongest Q2 on record. Poland led the charge with 51 tonnes in the quarter, inching closer to its multi-year target of 700 tonnes in total reserves. The National Bank of Poland has now positioned itself as the world's most active central bank buyer this year, with net purchases of 82 tonnes since January.

China's central bank, meanwhile, recorded its largest quarterly purchase since late 2023 at 33 tonnes — marking the 21st consecutive month of accumulation. Uzbekistan (16.5 tonnes) and Kazakhstan (6.5 tonnes) also continued their buying streaks from the prior year. A June survey of 74 central banks found that 45 percent plan further purchases within the next twelve months, while only one institution is contemplating sales.

Beijing's Strategic Reclassification

Perhaps the most telling development comes from Beijing. A 2025 action plan backed by nine ministries and agencies has formally classified gold as a strategic mineral and a cornerstone of China's financial and industrial security. That designation elevates the metal beyond mere portfolio diversification into the realm of national policy — a shift with long-term implications for global demand.

Chinese miners are responding in kind. According to the China Gold Association, overseas production by the country's leading miners jumped 25 percent in 2025 to 90 tonnes, while domestic output grew just 1 percent to 381 tonnes. But the expansion strategy is hitting regulatory headwinds: Zijin's $4 billion acquisition of Canadian producer Allied Gold failed to close, a deal that S&P Global says underscores the growing barriers to cross-border mining takeovers.

Supply-Side Strains Mount

The demand picture is colliding with a supply side that's showing cracks. S&P Global analyst Paul Manalo projects global gold supply will peak this year at 110 million ounces before declining to 103 million ounces by 2028. Since 2020, only five major deposits totaling 17 million ounces have been discovered — a thin foundation for future growth.

Canadian producer B2Gold has already felt the squeeze. The company cut its annual guidance for the Fekola complex in Mali to 390,000–420,000 ounces, down from a previous outlook of up to 460,000 ounces. In a partial offset, B2Gold received its mining license in early August for the nearby Menankoto project, which is expected to deliver more than 150,000 ounces annually from 2028 onward.

An Industry Push for Transparency

Amid these crosscurrents, the World Gold Council is working to formalize the artisanal and small-scale mining (ASGM) sector — the segment that produces a significant share of global supply but has long operated in the shadows. On August 12, the council signed a memorandum of understanding with commodities firm Dynacor to improve traceability through centralized processing facilities. Two days earlier, a similar agreement with OCIM Metals & Mining was struck for West Africa, targeting environmental and social standards while curbing illegal output.

The council also launched the "Gold Dealer Assurance Standard" on August 19, developed jointly with the British Standards Institution, to bolster transparency and trust in retail gold trading. The framework arrives as the industry responds to growing investor interest with clearer standards.

A Two-Tiered Market

For investors, the picture is decidedly split. In the near term, rate expectations following Warsh's comments and the geopolitical news flow around the Strait of Hormuz dominate trading. COMEX registered gold inventories have fallen to 14.51 million ounces and have remained below the 15-million-ounce threshold since late June — traditionally a sign of physical tightening that could lend support over the medium term.

But the longer view is shaped by the relentless accumulation from Warsaw, Central Asia and Beijing's strategic reorientation. The structural demand backdrop, reinforced by the World Gold Council's formalization push, suggests the current pullback may be a pause rather than a reversal — even as the Fed's hawkish shadow keeps a lid on near-term upside.