Gold jumps back above $4,100, bouncy!

The real story here isn’t that gold is rallying on the war, it’s that it hasn’t, at least not durably, with rising Treasury yields and dollar strength appearing to dominate whatever safe-haven flows the conflict has generated. Goldman’s read (Goldman Sachs estimates China bought 48 tonnes of gold via the London OTC market in May, nearly five times the official 10 tonnes reported) adds an important structural counterweight to that picture: persistent, China-led central bank buying means the kind of deep, prolonged correction that higher real yields would normally produce may be less likely than in past cycles, since there’s a large and relatively price-insensitive buyer absorbing selling. That reframes this week’s bounce less as a war-fear trade and more as gold finding support at a floor Goldman has been pricing in for months. If yields ease from here, that removes the main headwind while the central bank bid remains in place, a combination that could matter more for gold’s medium-term direction than the day-to-day path of the war itself.

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Earlier:

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Gold has been sold through most of this war, but Goldman says China’s buying spree is quietly putting a floor under it.

Summary:

• Gold has climbed back above $4,100 an ounce, but remains close to its lowest level in nine months.
• The metal is roughly 27-29% below its all-time high of $5,597.23, hit on January 29, with rising Treasury yields and dollar strength appearing to have outweighed war-driven safe-haven demand.
• Goldman Sachs said earlier this week that strong central bank gold buying, led by China, continues to provide a price floor even amid pressure from hawkish Fed pricing.
• China was the largest identifiable central bank buyer at an estimated 48 tonnes in May, with its central bank later reporting its 20th consecutive month of official reserve purchases.
• Goldman maintains a $4,900 year-end target, citing central bank diversification away from the dollar as a multi-year structural trend supporting prices.

Gold has climbed back above 4,100 dollars an ounce but the metal remains close to its lowest level in nine months and well below the all time high of 5,597.23 dollars it reached on January 29.

That gap is notable given the scale of the conflict gold has traded through. Gold strengthened above the psychologically important 4,000 dollar level on Tuesday while still sitting close to its nine month low, even as investors remained focused on the risk of energy driven inflation and higher interest rates stemming from the US Iran war. Rather than a fresh flight to safety, the move looks more like a bounce off depressed levels, with the metal having fallen roughly 27 to 29 percent from its January peak over the course of a conflict that might otherwise be expected to support haven demand. Rising Treasury yields and broader dollar strength appear to have outweighed whatever safe haven bid the conflict itself generated.

Goldman Sachs offered a structural counterpoint to that pressure earlier this week, telling clients that gold remains under pressure from elevated US bond yields but that robust central bank demand should prevent any sustained sell off. The bank said official sector buying continues to underpin the market. Goldman said central banks purchased strongly in May, with China identified as the largest single buyer at an estimated 48 tonnes, part of a broader acceleration in official sector demand. China’s central bank separately reported its 20th consecutive month of reserve gold purchases in June, extending a buying streak tied to Beijing’s push to diversify away from dollar denominated assets.

Goldman maintains that official sector demand has fundamentally changed the character of the gold market by reducing the likelihood of deep and prolonged corrections, keeping its 4,900 dollar end of year target intact and pointing to central bank diversification following the 2022 freezing of Russian reserves as the anchor behind that view.