Gold Reverses 3.8% Slide as Central Bank Politics Hit the Headlines

The PRICE of GOLD extended an overnight rally on Thursday, reversing this week's previous 3.8% slide in London's spot market as doubts grew whether the US Fed will raise Dollar interest rates once or twice before the end of the year, and the politics of central bank gold reserves hit the headlines.

"It's not really about financial conditions affecting the economy," claims New York Federal Reserve President John Williams of the surge in US government borrowing costs, ignoring the wider move higher in long-term interest rates worldwide.

"What's driving it, in large part, is really a strong US economy and a strong economic outlook."

"[But] the rise in inflation has so far been driven almost entirely by higher energy costs," says a research blog from European Central Bank economists and policy advisors published Tuesday by the ECB in Frankfurt, contrasting 2026 with the post-pandemic inflation of 2021-22 and calling for a "distinct" policy response rather than a rush to hike interest rates.

"The Netherlands has improved the liquidity and tradability of its gold reserves," the world's 11th largest sovereign gold owner and major Nato member meantime announced this week, making the DNB "better prepared for severe crises [amid] increasing geopolitical unrest by transferring part of its gold holdings from New York and Ottawa to London."

Media comment has in recent years focused on central banks "removing gold from London" in what's been called "repatriation".

But custody holdings at the Bank of England have now recovered the level of late-2021, before Russia's all-out invasion of Ukraine spurred Western sanctions against Moscow, widely seen driving a shift towards domestic storage of record central-bank gold purchases by emerging market and non-Western nations.

With London spot gold prices rising as high as $4490 per troy ounce today, "China is building a global network of gold vaults and accelerating central bank reserve buying as part of efforts to promote the Yuan's role in international trade," says the South China Morning Post in Hong Kong, citing a report from financial ratings and data agency S&P Global.

"Based on available data," says the mining industry's World Gold Council, "central banks added 23 tonnes to global official gold reserves in July. While this was lower month-on-month, momentum appears to remain positive, continuing to be led by China and Poland."

Aiming to grow its domestic holdings towards 1/3rd, Poland this year overtook the Netherlands as world No.10 gold reserves owner. China is widely believed to be buying more gold than it reports.

Betting on US Fed interest rates meantime eased a little on Thursday, cutting the odds of a September rise to 3-in-5 and putting a 55% chance on the US central bank then making no further rises by year-end.

After Tuesday's ISM PMI report said growth in US manufacturing activity slowed in August from July's 4-year high, yesterday's ADP Payrolls data said the world's largest economy added only 38,000 jobs last month, the fewest since January.

Friday will bring August's non-farm payrolls report from the more closely-followed Bureau of Labor Statistics.

Like gold, silver prices today reversed this week's London spot market plunge, rising back to $66.40 per troy ounce.