Gold falls after three-month high on profit-taking

Gold prices fell today after reaching their highest level in more than three months earlier in the session, as profit-taking and a stronger dollar capped gains ahead of the release of U.S. inflation data and a speech by Federal Reserve Chair Jerome Powell later this week.

Spot gold fell 0.2 percent to $4,640.40 per ounce, after hitting its highest level since May 14. U.S. gold futures settled at $4,696.10.

Ole Hansen, an analyst at Saxo Bank, said, “Gold’s move is primarily driven by profit-taking, as the dollar recovered from some losses last week following the announcement of bond buybacks,” referring to the U.S. Treasury’s decision to double the volume of its long-term bond repurchase operations to support liquidity.

After the dollar fell to its lowest level in over three months following the Treasury’s announcement of plans to buy back Treasury bonds, it recovered some of its gains today, amid renewed bets on its depreciation, making dollar-denominated gold more expensive for foreign buyers.

A CME Group FedWatch tool indicates that traders currently see a 40 percent probability of a U.S. interest rate hike in September, and a 60 percent probability that the Fed will keep rates unchanged.

Higher interest rates can limit demand for the non-yielding yellow metal.

Meanwhile, the World Gold Council reported that gold-backed exchange-traded funds attracted inflows of 46.7 tons ($6.4 billion) last week, marking the largest weekly demand in 10 months.

On the geopolitical front, Iran vowed to retaliate against expanded U.S. economic sanctions, which Washington said would cut off the lifeline of the Islamic Republic’s economy.

In other precious metals, spot silver fell 1.3 percent to $68.03 per ounce, platinum dropped 1.4 percent to $1,849.18, and palladium slid 2.2 percent to $1,327.50.

Michael Cheo, an analyst at Bank of America, said the Treasury’s announcement last week increases the likelihood of gold rising above this level, which would equate to additional gains of nearly 3 percent compared to Friday’s closing price. In a client note, he added that the U.S. policy adjustment “supports a constructive view on gold,” according to CNBC, as reported by Al Arabiya Business.

This follows the Treasury’s announcement of raising the cap on bond buyback operations to at least $4 billion, up from the previous $2 billion. CNBC also quoted senior Treasury officials as saying that Treasury Secretary Scott Bessent may tap the Treasury General Account, which is nearing $1 trillion, to help fund the plan.

Gold rose more than 1 percent during Monday’s trading, after jumping more than 5 percent last week, recording its fifth consecutive weekly gain—the longest streak of increases since last October—as investors reacted to sharp volatility in the U.S. Treasury bond market.

Cheo believes the recent gains reflect gold’s sensitivity to potential shifts in economic policy, noting that Bessent’s comments about possessing a “large toolkit” may pave the way for further market interventions in the future.

Deutsche Bank was not alone in betting on gold as a safe haven. Ray Dalio, the billionaire founder of Bridgewater Associates, urged investors to increase the relative weight of gold in their portfolios to hedge against any potential debt crisis linked to rising government borrowing, noting that the metal could account for between 10% and 15% of portfolio assets.

Gold recorded its largest annual gains since 1979 in 2025, supported by a combination of monetary policy easing, increased central bank purchases, and strong inflows into gold-backed exchange-traded funds.

New data from Goldman Sachs revealed that China’s actual gold purchases far exceed those reported by the People’s Bank of China (PBOC), as Beijing continues to reduce its holdings of US Treasury bonds and diversify its foreign reserves.

The data showed that China bought approximately 40 tonnes of gold in June via the London over-the-counter (OTC) market, compared to just 15 tonnes officially reported by the PBOC. May saw a similar gap, with actual purchases reaching around 48 tonnes versus only 10 tonnes in official figures.

These figures brought China’s total OTC purchases for May and June to approximately 88 tonnes, surpassing the total official purchases announced by the Chinese central bank since the beginning of the year, according to Blockonomi, as reviewed by Arabi Business.

The Kobeissi Letter report indicated that June’s purchases were among the largest monthly buys for China since the start of 2025, suggesting that the gap between official data and market estimates reflects a much higher pace of buying than is being disclosed.

Meanwhile, the PBOC continued to bolster its reported reserves, adding 20 tonnes of gold in July, marking the largest monthly increase since October 2023. Total reserves rose to a record high of 2,366 tonnes, marking the 21st consecutive month of increases.

This coincided with China’s continued reduction in exposure to US assets, as Beijing’s holdings of US Treasury bonds fell to $633.4 billion in June, the lowest level since 2008, signaling a continued strategy to diversify reserves away from the dollar.

Demand for gold also extended to local investors, with open gold contracts on the Shanghai Futures Exchange jumping to nearly 400,000 contracts during the current week, the highest level since September 2025.

Global Markets Investor noted that this surge represented one of the largest two-day increases in open contracts over the past five years, reflecting a strong return of Chinese investors to precious metals.

The convergence of central bank purchases, OTC market transactions, and rising futures activity points to sustained strong demand for gold in China, from both official institutions and investors, as the country seeks to enhance reserve diversification and reduce reliance on dollar-denominated assets.