Gold Price Wobbles at Highs: Can Central Bank Buying Spree Continue? Derivatives Market Shows Growing Divergence

Gold Wobbles at Highs, Central Bank Buying Spree in Focus

Recently, international gold prices have been oscillating near record highs, with market sentiment clearly divided. On one hand, geopolitical uncertainties, global rate cut expectations, and de-dollarization trends in some economies provide support. On the other, a resilient dollar index, higher real interest rates, and profit-taking by some investors weigh on prices. In this context, the continued gold purchases by global central banks have become a focal point—whether this structural force can persist is seen as a key variable for gold's medium-term trajectory.

Central Bank Buying: From Supporting Role to Lead

Over the past two years, global central bank gold purchases have consecutively broken historical records. According to the World Gold Council, net central bank purchases exceeded 1,000 tonnes in both 2022 and 2023, and while slowing in 2024, remained at elevated levels. Behind this trend is a deliberate adjustment by emerging market central banks to reduce reliance on dollar assets, and a rebalancing of reserve diversification, safety, and liquidity. Especially amid frequent geopolitical conflicts and the freezing of foreign exchange reserves by Western sanctions on Russia, gold's "politically neutral" nature has come to the fore, making it an option for some central banks to hedge against financial sanctions risk.

Entering 2025, the pace of central bank buying has seen subtle shifts. First-quarter data shows some Asian central banks have moderated their purchases, while European central banks have slightly increased theirs. Market interpretations vary: optimists view central bank buying as a long-term strategic move, with short-term fluctuations not altering the trend; cautious observers point out that persistently high gold prices might curb purchases by price-sensitive central banks, prompting them to wait for pullbacks.

Market Sentiment Divergence: Bulls vs. Bears

Behind the high-level consolidation, futures and options positioning reveals clear divergence. According to the latest CFTC Commitments of Traders report, net long positions in COMEX gold futures have retreated from earlier peaks but remain at historically high percentiles. Meanwhile, implied volatility on put options has risen, indicating some funds are hedging downside risks. In contrast, ETF flows show an "East in, West out" pattern: Asian gold ETFs have seen net inflows for several consecutive weeks, while North American and European markets have experienced outflows, reflecting regional differences in investor outlook.

This divergence is also evident among investment banks and institutions. Some Wall Street banks have raised gold price targets, arguing that central bank buying combined with rate cuts will drive prices higher. Others warn that if US economic data remains strong and the Fed delays cuts, high real rates could undermine gold's appeal, potentially leading to a correction of over 10%.

Sustainability of Central Bank Buying: Three Key Dimensions

To assess whether the central bank buying spree can continue, three dimensions warrant observation:

• Policy Dimension: Whether global central banks continue to diversify reserves. If the dollar's share in global reserves keeps declining, demand for gold as an alternative asset will find long-term support. According to IMF data, the dollar's share in official reserves has fallen to a historic low of around 58%. If this trend persists, central bank buying will have structural momentum.
• Price Dimension: The relationship between gold prices and central bank buying appetite. Historically, central banks have shown "counter-cyclical" behavior—increasing purchases during price pullbacks. With prices at record highs, some central banks may slow their buying, waiting for better entry points. Therefore, a significant price correction could actually trigger a new wave of buying.
• Geopolitical Dimension: Whether geopolitical tensions persist. If global conflicts cool and trade relations ease, central banks' safe-haven demand for gold may weaken. Conversely, prolonged uncertainty would solidify gold's status as a safe asset, making purchases more sustainable.

Derivatives Market: Volatility Trading and Structured Product Opportunities

For the derivatives market, gold's high-level volatility and central bank buying uncertainty offer a wealth of trading opportunities. Recently, the implied volatility curve for gold options has shown a "low near-term, high far-term" shape, suggesting expectations of increased volatility in the medium to long term. Some institutions are recommending call spreads or calendar spreads to capture breakout moves at lower cost. Meanwhile, structured deposits and snowball products linked to gold are regaining attention, but investors should be mindful of higher knock-in risks in range-bound markets.

Additionally, RMB-denominated gold derivatives (such as Shanghai Gold futures and gold ETF options) have seen significantly higher trading activity, reflecting rising domestic demand for gold as a hedge and allocation. As more commercial banks participate in market-making for gold derivatives, liquidity is expected to improve, offering institutional investors more refined risk management tools.

Conclusion: Short-Term Sentiment, Medium-Term Central Banks

In summary, gold's short-term path will be more influenced by Fed policy, the dollar index, and market risk appetite, with likely increased volatility. The medium-term direction, however, hinges on whether central bank buying persists. If global central banks continue to add 800-1,000 tonnes annually, any price correction would see a significantly higher floor. Conversely, a sharp drop in purchases could remove crucial support, leading to a deeper adjustment.

For investors, during high-level consolidation, it's wise to avoid one-sided bets and instead use derivatives to flexibly manage risk exposure, while closely monitoring monthly central bank purchase data as a key leading indicator for market turning points.