Gold's Two-Track Market: Central Banks Hoard While Retail Steps Back

Central bank gold purchases surge 62% in Q2, led by Poland and China, while jewelry and ETF demand slump amid high prices.

The gold market is telling two very different stories at once. On one side, central banks are buying bullion at a pace not seen in years, with Poland leading the charge and China quietly amassing reserves. On the other, jewelry buyers and Western investors are retreating, spooked by prices that remain historically elevated even after a sharp pullback from January's record.

The World Gold Council's second-quarter demand report, released July 30, captures the divergence in stark terms. Global gold demand held steady at 1,269 tonnes year-on-year, while first-half demand ticked up 2 percent to 2,522 tonnes — a haul valued at a record $380 billion. But beneath those aggregate figures lies a market in transition, where the buyer base is shifting decisively toward official institutions and away from traditional retail channels.

Central banks reassert their dominance

After a surprisingly weak start to the year, central banks returned to the market with conviction in the second quarter. Their purchases reached 289 tonnes, up 62 percent from a year earlier — a sharp reversal from the first quarter, when buying was revised down to just 57 tonnes, the lowest level in 15 years and a 76 percent year-on-year collapse.

Poland was the most aggressive buyer, adding 51 tonnes, with China close behind at 33 tonnes. Russia, meanwhile, sold 22 tonnes during the period. The World Gold Council's survey of central banks suggests this trend has legs: 89 percent of institutions expect global reserves to keep growing, and 45 percent are actively planning to add to their holdings. Gold has now overtaken US Treasuries as the largest reserve asset among central banks worldwide, accounting for roughly 27 percent of global reserves versus about 22 percent for US government debt.

China's appetite extends beyond its central bank. The country imported 865 tonnes of gold in the first half of the year, an 89.1 percent surge from the same period in 2025 — evidence that demand from Asian buyers, both institutional and private, is broadening the market's foundation.

Even the crypto world is getting involved. Tether, the stablecoin issuer, purchased 14 tonnes of gold in the second quarter and now holds more than 146 tonnes, valued at around $18.8 billion — roughly 10 percent of its total reserves.

The price squeeze on traditional buyers

The flip side of that institutional enthusiasm is visible in the consumer segment. Jewelry demand fell 17 percent by volume, with China's second-quarter consumption dropping to just 50 tonnes, its lowest since 2005. Yet because of higher prices, the sector's value actually rose 22 percent to $86 billion — a telling illustration of how volume and value have decoupled in this market.

Investment demand outside the over-the-counter market also took a hit, falling to 262 tonnes from 487 tonnes in the same quarter last year. Gold-backed ETFs saw outflows of 45 tonnes. Supply, meanwhile, remained steady: mine production edged up 2 percent to 966 tonnes, while recycling volumes declined.

Price action: stabilizing below the peak

The market itself has cooled considerably since the euphoric rally of late January. Gold closed Friday at $4,098.60 per ounce, down 1.54 percent on the day, as the US dollar firmed — a classic headwind for the dollar-denominated metal. That leaves bullion roughly 27 percent below its 52-week high of $5,626.80, set at the end of January, and about 2 percent under its 50-day moving average of $4,199.84.

The $4,000 level has emerged as a critical support zone, tested repeatedly since gold first slipped below it in July — the first such breach since October. The metal has managed to hold that line, and July delivered a monthly gain of about 1 percent, its first positive month in five. The 30-day trend shows a modest 1.35 percent uptick, though the failure to reclaim the 50-day average suggests the recovery remains tentative rather than decisive.

A hawkish Fed complicates the outlook

Monetary policy is adding another layer of uncertainty. New Federal Reserve Chair Kevin Warsh has scrapped the central bank's forward guidance and avoided public commentary on inflation fighting — a shift Bank of America has dubbed an "inflation credibility shock." Warsh has also floated reducing the number of Fed meetings from eight to six or four per year, which observers describe as the biggest operational change at the central bank since 1981.

The Fed has held its benchmark rate at 3.50 to 3.75 percent, though three members voted for an increase. Yields on 30-year US Treasuries have climbed to 5.2 percent, their highest since 2007. That backdrop has prompted Commerzbank to cut its year-end 2026 forecast for a second time, from $4,800 to $4,500, citing a persistently restrictive Fed and a strong dollar. The bank now sees its long-term target of $5,000 arriving only in 2027, with no rate cuts expected before mid-year.

UBS takes a more constructive view, projecting a gradual recovery to $4,400 by September, $4,600 by December, $5,000 by March and $5,200 by June 2027 — while acknowledging a downside risk to $3,850 if the Fed hikes. Other major banks have also trimmed their targets, with estimates for this year and next ranging from roughly $4,300 to $5,600. Raiffeisen holds at $4,500 for year-end, implying about 10 percent upside from current levels, while the World Gold Council sees prices above $4,500 as likely only in a significant global economic slowdown.

The structural bull case versus the cyclical headwind

Ray Dalio of Bridgewater has added a longer-term warning, arguing that the US economy is approaching a "point of no return" on debt, given an annual gap of $2 trillion between government spending and revenue — an environment that traditionally supports gold as a hedge against inflation and fiscal risk.

For now, the market remains genuinely divided. A recent survey found 29 percent of experts expecting higher prices, 35 percent anticipating declines, and the rest forecasting sideways movement. What's clear is that the metal's fate hinges on two competing forces: the structural support from central bank accumulation and Asian demand, and the cyclical drag from Fed policy and dollar strength. The $4,000 mark has become the battleground where those forces will continue to collide.