89% of Central Banks Expect Higher Gold Reserves as the Correction Masks a Record Shift in Global Demand

Gold has climbed back above the psychologically important US$4,000 level after briefly falling below it last week. While prices remain modestly lower year-to-date and around 25% below January's record high, the recent correction masks a significant shift in who is selling and who is buying, according to Nagham Hassan, Market Analyst at etoro.

"The recent weakness in gold has been driven primarily by changing interest rate expectations rather than a deterioration in the long-term investment case," said Hassan. "Higher US real yields and a stronger dollar have weighed on prices, prompting selling from Western investors and futures traders. At the same time, central banks and long-term buyers, particularly in China, have continued accumulating physical gold."

According to the World Gold Council, global gold ETFs have returned to net outflows, while COMEX open interest has fallen to its lowest level since 2009, highlighting reduced speculative positioning in the market.

However, official demand remains robust. The People's Bank of China added 15 tonnes of gold in June, marking its largest monthly purchase since October 2023 and extending its buying streak to 20 consecutive months, taking official holdings to 2,346 tonnes.

The World Gold Council's 2026 Central Bank Survey further reinforces this trend. Nearly 89% of reserve managers expect global central bank gold reserves to increase over the next year, while a record 45% plan to increase their own holdings. Gold has now overtaken US Treasuries as a share of global official reserves, with almost three-quarters of surveyed central banks expecting the US dollar's share of reserves to continue declining over the next five years.

"This tells us that the de-dollarisation trend remains firmly in place," Hassan added. "While short-term traders have reduced exposure, long-term institutional buyers continue viewing gold as a strategic reserve asset."

China signals a growing focus on physical gold

Recent developments in China also point to a changing market structure. Several major Chinese banks, including ICBC, have announced they will discontinue retail paper and leveraged gold trading on the Shanghai Gold Exchange after 24 July 2026, while leaving physical gold ownership unaffected.

"Taken alongside Hong Kong's continued expansion of physical vault capacity, these developments suggest an increasing emphasis on physical ownership rather than paper exposure," Hassan explained.

Investor behaviour within China is also evolving. Chinese equity ETFs have experienced larger outflows than gold ETFs, while the Huaan Yifu Gold ETF has become China's largest exchange-traded fund, overtaking the CSI 300 ETF for the first time.

Technical picture remains mixed

For active traders, Hassan notes that gold remains in a corrective phase.

"Gold continues to trade below a declining trendline while forming lower highs. The immediate support zone lies between US$3,958 and US$3,896. Holding this range could support a rebound, while a sustained break below would expose stronger support around US$3,513."

On the upside, she says the first key resistance remains the descending trendline, followed by the 200-day moving average near US$4,493, which would need to be reclaimed to improve the medium-term outlook.

Long-term demand remains intact

Despite near-term volatility, Hassan believes the underlying structural story for gold remains positive.

"The current correction reflects changing expectations around interest rates more than changing conviction in gold itself. While Western investors have reduced exposure, central banks continue accumulating physical bullion at record levels, and Chinese investors are increasingly favouring physical ownership. The composition of gold buyers is changing, and that shift could prove more important than today's price movements."