As the price of gold experiences significant volatility, a recent survey from the World Gold Council indicates that the willingness of global central banks to increase their gold holdings has reached a historic high, providing solid underlying support for a long-term bull market in gold. However, in the short term, factors including fluctuating US-Iran tensions, shifting expectations around US Federal Reserve interest rate hikes, and capital rotation into riskier assets are pushing gold into a phase of heightened price swings.
Survey Reveals 45% of Central Banks Plan to Increase Holdings, Led by Emerging Markets
According to a joint survey conducted by the WGC and YouGov, among 74 responding central banks, a significant 45% plan to boost their gold reserves over the next 12 months. This is the highest proportion recorded since the survey began in 2018, with only one central bank indicating an intention to reduce holdings. Over the past three years, the gold price has more than doubled, with accelerated central bank purchases being a key driver. Although countries like Turkey, Russia, and Azerbaijan have begun selling gold, the overall pace of buying accelerated in the first quarter of this year.
The survey shows that the main drivers of increased holdings are from emerging market and developing economies. Approximately 53% of central banks in these economies expect to expand their gold reserves in the coming year, compared to just 18% among developed economy central banks. Notably, about half of the central banks planning purchases intend to use a "domestic procurement" model, buying gold from domestic miners using their local currency rather than depleting scarce foreign exchange reserves. Another 38% of respondents plan to finance purchases by selling existing reserve assets.
Shaokai Fan, Global Head of Central Banks at the WGC, noted that the recent pullback in gold prices has actually created a buying window for many central banks. He added that in 2025, many central banks had expressed a view that prices were somewhat high and they wanted to wait for a better entry opportunity.
Furthermore, against a backdrop of heightened geopolitical risks, the storage locations for central bank gold reserves are shifting. While the Bank of England remains the most popular gold custodian globally, used by 57% of respondents, 9% of central banks have moved more gold onshore within their own countries over the past year. Another 10% have diversified their storage across different locations. Both figures represent a significant increase from 5% and 2%, respectively, in last year's survey.
Fan pointed out that political risk is undoubtedly a major concern for central banks currently. This trend presents opportunities for emerging hubs like Singapore and Hong Kong, China, which are looking to strengthen their local gold markets.
US-Iran Agreement Amplifies Volatility, Rate Expectations a Key Short-Term Variable
This year, the gold market has been pulled in different directions by geopolitical conflict and shifting macroeconomic expectations. Early in the Iran conflict, tensions around the Strait of Hormuz pushed international oil prices sharply higher. High energy costs fueled inflation concerns, leading markets to briefly anticipate that the Fed might delay rate cuts or even resume hikes, putting pressure on non-yielding assets like gold.
Concurrently, a capital rotation effect became more pronounced. From March to May, global gold ETFs saw net outflows totaling 55 tonnes. Analysis suggests this represents speculative funds that had driven the gold rally since late last year taking profits. Some investors, after cashing out gold gains, turned to previously lagging assets and the IPO frenzy sparked by companies like SpaceX, Anthropic, and OpenAI.
Analyst Tom Price from Panmure Liberum noted that investors are looking for assets like SpaceX, rather than gold, to continue the investment party. Additionally, as mentioned, some emerging market central banks have begun selling gold, either for currency defense or to fill fiscal needs. Reports indicate Turkey sold or mobilized around $20 billion in gold, with Russia conducting similar sales.
Under these combined pressures, the international gold price fell to a six-month low of $4,022 per ounce on June 11, representing a retreat of over 20% from its peak near $5,600 earlier in the year. However, the market reversed dramatically following news of a preliminary US-Iran agreement. Previous market fears that high oil prices would force the Fed to maintain tight policy were alleviated as the agreement's cooling of geopolitical tensions directly pushed oil prices lower, easing inflation and rate hike worries. On the day the news broke, the gold price jumped over 2.6%, rebounding to around $4,340, while the implied probability of a rate hike priced into futures markets plunged from about 70% to 58%. Funds that had exited on safe-haven logic began re-evaluating gold as "tightening expectations faded."
Investment Banks Cautious Short-Term, Bullish Long-Term
In the near term, institutions remain cautious on gold prices. UBS Group significantly lowered its near-term forecasts in a recent report. The bank suggests that under a "double whammy" of stronger-than-expected US jobs data and delayed Fed rate cuts, gold could continue to seek support in the $3,850 to $4,000 range, implying a potential further decline of $300 to $900 from current levels. The bank had already lowered its year-end price target from $5,900 to $5,500 in May.
However, for the medium to long-term trajectory, UBS maintains a "constructive view." Its base case assumes the Fed will cut rates by 50 basis points before 2027 and that US economic growth will be below trend. Simultaneously, persistently deteriorating US fiscal conditions and robust gold-buying demand from global central banks are expected to provide momentum for a gold price recovery. Following the US-Iran agreement, Citi also set a six-month gold price target of $5,000 per ounce, noting that gold has now shifted from simply reacting to war news to a repricing phase more sensitive to oil prices, interest rates, and the US dollar index.
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