Gold Ignored High Real Rates: 289t of Central Bank Buying Is the Real Support

Central bank demand is overpowering the classic real-rate drag on gold

The old gold model said higher real rates should cap the metal. This year, demand kept building anyway. First-half demand reached 2,522t, and the record value of US$380bn shows buyers kept absorbing supply even after prices had risen sharply. That points to a market where structural demand is outweighing the usual opportunity-cost headwind.

Q2 demand held up despite ETF and jewellery weakness

The clearest signal came in the second quarter. Total demand was still 1,269t in Q2 even with ETF outflows of 45t and jewellery demand falling to 278t, its lowest quarterly volume since the pandemic. Those are the segments many investors assumed would weaken first if rates stayed high and the dollar stayed firm. Gold was still facing pressure from hawkish monetary policy stances, but that pressure did not translate into a broader demand breakdown.

Bears can still argue that traditional drivers have not disappeared. They can also point to the fact that central banks will continue to show strong demand this year, while other parts of the market remain more sensitive to real yields and the dollar. Even so, the more useful reading is that the bid is broader and deeper than Western paper flows alone would suggest.

Central banks have become the market's main price support

The key change is not that gold no longer reacts to real rates. It is that official buying became large enough to absorb marginal supply and cushion the spot market when other demand softened. Q2 net purchases reached 289t, a record high for a second quarter, and that rebound came after Q1's revised 57t only briefly slowed the half-year pace. The biggest bid is no longer purely discretionary capital chasing yield; it is reserve-manager demand following policy.

Why the central bank bid matters more now

That distinction matters for price discovery. Investment demand can move sharply when real yields rise, and ETF outflows of -45t in Q2 showed that sensitivity is still there. But central bank demand moved the other way at the same time. When one group is selling because gold looks expensive on a yield-adjusted basis, while another is buying for reserve diversification, the usual opportunity-cost relationship gets muted.

The buying looks sustained, not cosmetic

What makes this support more credible is the size and consistency of the official buying. In April, Poland added 14t and China added 8t, with Beijing's purchase its highest since December 2024 and part of an 18-month buying run. Poland's accumulation also stands out in allocation terms, with gold around 30% of total reserves. That is not marginal activity. It is repeated official absorption of available metal across different regions.

There are still caveats. The first-half pace was weighed down by a weak opening quarter, and Russia remained the only sizeable seller in Q2. But the broader implication for investors is fairly clear: when official buyers keep returning to the market, downside moves need much weaker fundamentals to break lower.

The forward setup depends on whether central banks keep buying

The most important forward signal is whether this buying persists. Central banks intend to continue buying over the next 12 months, and analysts also expect central banks will continue to show strong demand this year. If that holds, dips are more likely to find buyers quickly. The practical takeaway is simple: real rates still matter, but official reserve demand is now the main offset.