Macquarie bullish on gold as central banks lift buying

Macquarie said aggressive buying of gold by central banks through 2023 had supported a higher-than-expected gold price given the twin headwinds of a strong US dollar and rising risk-free rates of return on bonds and cash.

The Australian dollar, which last week hit a 10-month low, added 0.9 per cent against the US dollar to buy US64.4¢ on Monday, while yields on US 10-year treasuries climbing 4 basis points to 4.30 per cent.

World Gold Council data showed central banks in China, Turkey, Poland, Qatar, and Singapore were the top net buyers of physical gold in July, as mandarins hedged their bets should the US print more dollars to fund government spending, putting pressure on the greenback.

China has now raised its gold holdings for nine straight months at the same time as it cut US treasury holdings to a record low of $US835.4 billion in June.

China buys gold

“China seems to be selling treasuries and buying gold,” said BetaShares chief economist David Bassanese. “It could be a political statement to say we’re reducing support for the bond market.


“But gold hasn’t shot the lights out since May. It’s actually weakened from over $US2000 and that’s correlated with resilient US economic growth, rising bond yields, and a stronger US dollar.”

In total, China bought 23 tonnes of gold in July to take its net buying to 126 tonnes in 2023 for gold reserves of 2136 tonnes, which is equal to around 4 per cent of the world’s reserves, according to the World Gold Council.

While global central banks bought a net total of 55 tonnes of gold in July, with two of the largest sellers – the Central Bank of Uzbekistan and National Bank of Kazakhstan – reducing holdings from domestic mining sources.

However, Mr Bassanese said it was a “long bow” to conclude that central bank gold bugs could push the metal’s price up, or that the buying was related to concern around US fiscal deficits.

“I don’t think central bank buying is a major factor for now,” he said. “But gold can rally if bond yields top out and people talk about interest rate cuts. If we get a risk-on environment where the US dollar weakens that’ll boost gold.”

Traditionally, the gold price moves inversely to risk-free investment yields, as physical gold generates zero income for investors and is worth more as a store of value when alternative assets offer lower yields.


The US Fed is expected to hold cash rates between 5 per cent and 5.25 per cent at its September policy meeting, with US core inflation forecast to rise 0.2 per cent month-on-month in August, when the data drops on Wednesday. Traders now place just a 48 per cent chance of a US interest rate increase by November.

In Australia, economists are divided over the likelihood the Reserve Bank lifts rates above current settings of 4.1 per cent, with futures pricing an implied peak rate of 4.17 per cent in February 2024, before an easing to an implied rate of 3.94 per cent in December 2024.