Gold prices have staged a rebound. On October 26, international gold prices resumed their upward climb. As of press time, London spot gold was quoted at $4,017.08 per ounce, up 0.54% on the day, having touched a high of $4,022.32 per ounce and reclaiming the psychological $4,000 per ounce threshold.
Futures markets strengthened in tandem. As of press time, COMEX gold futures were up 0.61% on the day at $4,032.4 per ounce, also climbing back above the $4,000 per ounce mark, with an intraday high of $4,036.2 per ounce.
Prior to this rebound, gold prices had undergone a sustained period of correction. Looking back, prices were still in a strong upward surge in early August before falling sharply. Data shows that since hitting a stage high on August 25, London spot gold has retraced nearly 14% in cumulative terms; measured from the yearly high on January 29, the cumulative pullback exceeds 25%, marking a clear cooling of enthusiasm in the gold market.
Last Friday, international gold prices once again fell below $4,000 per ounce, hitting a three-month low. Notably, the latest report from Goldman Sachs shows that global central bank gold purchases reached 79 tonnes in August, more than four times the pre-Russia-Ukraine conflict monthly average of 17 tonnes in 2022. China is currently the largest clearly identifiable buyer, purchasing approximately 25 tonnes in August. Goldman Sachs stated that China's gold reserve share still has room to rise.
The report noted that the motivation for countries to reduce reliance on Group of Seven (G7) reserve currencies and promote foreign exchange reserve diversification will persist. Against the backdrop of intensifying geopolitical conflicts and trade frictions, the appeal of gold as a reserve asset has not faded.
"The divergence of 'central banks buying while gold prices fall' essentially reflects a misalignment between short-term pricing and long-term allocation logic," said Liu Youhua, Research Director at Pailpailwang Wealth.
Liu Youhua further analyzed that in the short term, elevated oil prices, resilient U.S. inflation, and rising market pricing for further Federal Reserve rate hikes have strengthened U.S. Treasury yields and the dollar, raising the opportunity cost of holding gold. Meanwhile, volatility in global risk assets and the reassessment of France's sovereign credit have prompted some funds to liquidate highly liquid gold assets, creating concentrated short-term selling pressure. Additionally, central bank gold purchases are long-term reserve actions with a steady pace and low sensitivity to short-term prices, while ETFs, leveraged funds, and algorithmic trading are more sensitive to interest rate and dollar movements. When short-term selling exceeds the absorption capacity of long-term buyers, this phenomenon is not surprising.
Wang Zheng, General Manager of Shangyi Fund, also stated that central bank gold purchases and gold price corrections are not contradictory, as they correspond to different investment horizons and decision-making bases. Central banks increase gold holdings mainly for long-term reserve diversification considerations, while short-term prices are more susceptible to interest rate expectations and trading fund flows. Recent high oil prices have exacerbated inflation concerns, raising market expectations that the Federal Reserve will maintain high rates or even hike, weighing on gold prices. Moreover, Goldman Sachs' estimate covers August purchase volumes and cannot directly represent current buying intensity. Central bank demand helps support gold's long-term value but is unlikely to offset all short-term selling pressure, and this return above $4,000 is not yet sufficient to confirm the end of the correction.
Regarding the outlook, Liu Youhua judges that gold will likely continue to show a pattern of short-term volatility with medium-to-long-term support at the bottom. Short-term direction depends on macroeconomic data and policy. This week's Federal Reserve, European Central Bank, and Bank of Japan policy meetings, as well as U.S. PCE data, will all influence the dollar, Treasury yields, and gold price movements. Over a longer horizon, central bank gold purchases provide structural support, and the major cycle of continued global central bank accumulation is still ongoing. The trend of de-dollarization and reserve diversification remains unchanged, and combined with geopolitical conflicts and trade frictions, gold's reserve value remains prominent.
On investment strategy, Liu Youhua suggests that investors can treat gold as a diversification allocation within their portfolios, controlling position sizes and building positions in batches, while also paying attention to cost differences across various investment channels such as gold ETFs, physical gold, and bank gold accumulation products. Wang Zheng reminds that short-term gold price fluctuations will still be repeated, and whether prices can stabilize going forward mainly depends on whether inflation and Federal Reserve rate expectations ease. If high oil prices persist and tightening expectations further strengthen, gold will remain under pressure; if the dollar and Treasury yields decline, combined with long-term allocation demand, gold prices are expected to gradually recover.
In the medium to long term, reserve diversification remains an important support for gold. On the operational level, Wang Zheng advises treating gold as a tool to diversify portfolio risk, allocating in batches to smooth timing risk, and not viewing $4,000 as a certain bottom. Existing holdings can be rebalanced according to portfolio proportions, and it is not recommended to use leverage to speculate on short-term rebound movements.
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