Central bank gold demand has ‘very long runway' as East/West market split returns - Schroders

• China's PBOC increased monthly gold purchases more than 7x from 2 tonnes in February (at $5,000/oz) to 15 tonnes in June (at $4,250/oz), signaling they view current prices as attractive value
• At current prices, China would need to maintain June's 15-tonne monthly purchase pace for 33 years to reach a 30% gold-to-total-reserves ratio, up from the current 8.3%
• Schroders argues the U.S. is in an era of 'fiscal dominance' with $8-10 trillion in debt rollover plus $2 trillion in deficit financing over the next 12 months, limiting the Fed's ability to raise rates and supporting the gold bull market

Summary

Key Findings:

Schroders' latest gold market analysis reveals a renewed East/West split in June as gold prices fell nearly 12%. Asian investors and emerging market central banks aggressively purchased gold during the decline, while Western investors liquidated positions due to hawkish Federal Reserve concerns.

Central Bank Demand:

Central bank gold buying represents a critical long-term support for prices. Poland is expected to reach its 700-tonne target this year but will likely continue purchasing beyond that threshold. China's PBOC emerged as the most important buyer, increasing purchases more than 7x from 2 tonnes in February (at $5,000/oz) to 15 tonnes in June (at $4,250/oz).

China's Long Runway:

At $4,200/oz, China's gold reserves comprise just 8.3% of total reserves. To reach a 30% benchmark, China would need to maintain June's 15-tonne monthly purchase rate for 33 years, suggesting an "exceptionally long runway" for demand. Schroders believes actual PBOC purchases may be significantly understated, given historical patterns of delayed disclosure (2003, 2009, 2015).

Market Implications:

Schroders challenges the hawkish Fed narrative, noting collapsed forward inflation expectations and mixed labor market data. They argue fiscal dominance constrains Fed rate hikes, citing $8-10 trillion in Treasury rollovers plus $2 trillion in deficit financing over the next 12 months. Interest expenses already exceed defense spending, potentially impairing monetary policy transmission.

The analysis suggests central bank gold demand—particularly from China and emerging markets—provides durable support for the current gold bull market despite Western investor liquidation.