Gold's Two-Front Battle: Supply-Chain Sanctions and Record Central Bank Buying Reshape the Market

Central banks bought a record 289t of gold in Q2 2026, while LBMA suspensions of Chinese refineries threaten to fragment East-West bullion flows.

The gold market is caught between two powerful forces that rarely move in the same direction. On one side, a supply-chain dispute is threatening to fracture the physical trade between East and West. On the other, central banks are accumulating bullion at a pace never seen before for a second quarter, according to the World Gold Council.

The London Bullion Market Association has suspended two Chinese refineries from its Good Delivery lists within a matter of weeks. Shandong Gold Smelting was the first to lose its status in early August, after Washington placed the company on its Uyghur Forced Labor Prevention Act list. Days later, Hunan Shuikoushan Nonferrous Metals Group followed, stripped of its accreditation because its auditor declined to issue an unqualified sign-off on the firm's Responsible Silver Compliance Report for the 2025 financial year.

The China Gold Association has responded with unusual force, accusing both the United States and the LBMA of weaponizing the UFLPA designation to target parts of the country's gold industry. The dispute arrives at a delicate moment: with geopolitical tensions already running high, any further suspensions could deepen the fragmentation of physical bullion flows between the West and China, a scenario that would eventually ripple into pricing dynamics and delivery routes.

Central Banks Set a New Quarterly Benchmark

The institutional buying spree shows no signs of wavering. Central banks added a net 289 tonnes of gold in the second quarter of 2026, a record for that period, per World Gold Council data. The figure stands in stark contrast to the first quarter, when the Council was forced to slash its initial estimate from 244 tonnes to just 57 tonnes — making the Q2 rebound all the more striking.

The People's Bank of China has been a particularly active participant, purchasing 33 tonnes in the second quarter alone, its largest single-quarter acquisition since late 2023. That buying extends a remarkable streak of 21 consecutive months of accumulation. Poland and South Korea are also building their reserves structurally, while Turkey — historically a major buyer — offloaded roughly 70 tonnes in Q1.

Poland offers a concrete illustration of the trend. The Narodowy Bank Polski added 7.8 tonnes in July, lifting its total holdings to 640.2 tonnes, with stated plans to push toward 700 tonnes. A World Gold Council survey suggests this appetite is widely shared: 45 percent of central bank managers polled intend to raise their gold reserves within the next twelve months, and 89 percent expect global official reserves to keep climbing.

Private Demand Steps In as Jewelry Fades

The institutional wave is being reinforced from an unexpected corner. Tether, the stablecoin issuer, bought physical gold in significant volumes during Q2 to diversify its reserves and hedge against inflation — a sign that even the crypto sector is seeking refuge in the metal.

Total global gold demand reached 2,522 tonnes in the first half of 2026, up 2 percent year on year. But the composition of that demand has shifted dramatically. Bar and coin purchases surged 42 percent to 474 tonnes in Q1, while jewelry demand collapsed 23 percent. Investors and savers are increasingly displacing traditional consumers as the primary engine of demand.

Geopolitical risk continues to provide tailwinds. Ukrainian mining group Ferrexpo was forced to halt operations after Russian attacks disrupted its Black Sea export routes, while the ongoing military confrontation between the US and Iran over the Strait of Hormuz is pressuring oil markets and reinforcing gold's safe-haven appeal.

Market Positioning Turns Decisively Bullish

The futures market reflects a notable shift in sentiment. Traders are rotating out of hedging positions and into speculative long positions with maturities extending to November — a clear signal that the market expects further upside.

That conviction is supported by the monetary policy backdrop. Fed Chair Kevin Warsh, in office since May, has deliberately avoided concrete forward guidance, leaving investors guessing on the path of rates despite inflationary pressures. The uncertainty is pushing more capital into bullion.

The price action tells its own story. Gold closed Friday at $4,661.60, up 1.9 percent on the day and 5.2 percent for the week. The 30-day gain stands at 13 percent, though the metal remains 17 percent below its late-January record of $5,586.20. Relative strength sits at 70.5, a technically overbought reading that has done little to deter buyers.

What Comes Next

The immediate catalysts are monetary rather than geopolitical. Fed Chair Warsh is scheduled to speak at the Jackson Hole Economic Symposium on August 28, followed by the next FOMC meeting on September 16, which will include an updated dot plot. Both events are likely to move rate expectations and the dollar — and, by extension, determine how forcefully the refinery dispute influences global gold flows.

The China Gold Association has made clear it will not let the matter rest. How the LBMA responds will likely decide whether the physical market's fragmentation deepens or stabilizes. For now, the structural drivers — official sector buying, private hedging and geopolitical uncertainty — appear strong enough to carry the metal through the current cycle, provided central banks maintain their second-quarter pace in the reporting periods ahead.