Gold does a U-turn despite the stock rally

Investors seeking returns and concerned about the impact of US President Trump's trade war drove up gold prices, which had fallen in the first few sessions of June.

But the yellow metal made a U-turn on Wednesday as dip-buying and trade talk uncertainty brought investors back into the haven asset. May wasn't a great month for gold as risk assets rallied significantly.

Gold just $200 from a new all-time high

Still, bullion is about 200 dollars away from its all-time high hit in April. The precious metal is up around 28 per cent this year in the multiple record-setting rally. Along with longer-dated bond yields, the rise in the haven asset is a warning shot at the deteriorating economic outlook.

True to Wall Street's acronym of 'TACO,' 'Trump always chickens out,' the president has made outsized threats and followed through for a time, only to back off.

Still, the one bet that has traders worried is the impact of such uncertainty on the real economy. Central bank buying spree is keeping gold well bid amidst changing geopolitical dynamics.

More importantly, no one expects central banks to halt their massive purchases of gold. The buying spree by central banks has become a key factor in the record-breaking bull run in gold.

Goldman Sachs researchers believe that central banks and sovereign wealth funds are amassing nearly 80 metric tons of gold every month on a global scale. That at current prices would be worth around 8.5 billion dollars.

Trade data suggests that China and other unnamed purchasers via Switzerland account for a lot of the purchases, but much of the buying is done in secret.

The World Gold Council reports that central banks and sovereign wealth funds have been purchasing 1,000 tons of gold per annum, which is equivalent to at least 25 per cent of the annual mined production.

In January, HSBC surveyed 72 central banks, and almost a third of them intended to increase their purchases in 2025. None intended to sell.

Goldman Sachs maintains its 3,700 dollars per ounce end-of-year prediction. On Wednesday, gold was trading at around 3,360 dollars, not far from its all-time peak of over 3,500 dollars in April.

(With inputs from the agencies)