Gold’s Role as a Store of Value
Central banks hold the most Gold, with record purchases in 2022 of 1,136 tonnes worth $70 billion. This behaviour is to support currencies in uncertain times and strengthen economic perceptions.
Gold prices are inversely related to the US Dollar and US Treasuries. Various factors such as geopolitical instability and interest rates influence Gold prices. Generally, a weaker US Dollar leads to higher Gold prices, while a stronger Dollar keeps prices in check.
Monetary Policy Impact on Gold Prices
The current price stability in gold, much like the slight changes we saw in SAR prices, reflects a market holding its breath. All eyes are on the Federal Reserve after their November 2025 meeting hinted at a peak in the interest rate cycle. Markets are now pricing in a 60% chance of a rate cut by the end of the first quarter of 2026, which creates a supportive floor for gold.
This potential shift in monetary policy is already weakening the US Dollar, with the DXY index falling below 102 for the first time in several months. While this is typically bullish for gold, we see persistent inflation, with the last CPI report in October 2025 coming in at 3.1%, limiting how quickly rates might fall. This tension suggests options strategies that benefit from volatility, such as straddles, could be prudent.
We should not ignore the strong underlying demand from central banks, a trend that has continued since the record-breaking purchases we observed back in 2022. The latest World Gold Council data for the third quarter of 2025 confirmed that emerging market banks added another 260 tonnes to their reserves. This consistent buying provides a strong safety net against any significant price drops.
At the same time, risk assets are showing signs of weakness, with the S&P 500 struggling to find direction amid downward revisions to 2026 earnings forecasts. Geopolitical tensions, particularly concerning trade routes in the South China Sea, are also prompting a flight to safety. This environment makes holding long positions in gold derivatives an attractive hedge against potential equity market downturns.
