-
Gold just had its worst day in 12 years, snapping an unprecedented rally.
-
But investors may not be giving up just yet, as inflation fears and global turmoil fuel demand.
-
According to Lombard Odier, central banks will continue to collaborate, helping to put a floor on prices.
Gold’s record run was broken on Tuesday, falling to its worst single-day decline in 12 years after a historic rally.
Still, the yellow metal’s underlying supply-demand dynamics remain strong, even at “significantly overbought” levels in the near term, analysts at Lombard Odier, a Swiss private bank, wrote in a note Tuesday.
“Technical signals are challenged by the current more fundamental environment of accelerating demand and limited supply,” wrote Kiran Kowshik, global currency strategist, and Luca Bindelli, head of investment strategy at the bank.
Spot gold was trading around $4,140 per ounce at 1:09 a.m. ET on Wednesday, down from Monday’s record high of $4,381.21 per ounce, according to LSEG data.
Prices have risen as much as 60%, as investors – from central banks to private funds – sought protection against persistent inflation, growing fiscal deficits and geopolitical risk. At the same time, supply remains limited.
That dynamic is likely to support prices, with official sector demand being a key stabilizing force for gold.
“Central banks are still creating a higher gold ‘floor’,” the strategists wrote, adding that institutions have steadily increased their gold holdings since 2008.
“For many centuries, gold has offered, and continues to offer, currency-like characteristics: it serves as a medium of exchange, unit of account, and store of value,” they added.
Those qualities are particularly attractive now, given the high US public debt, which weighs on Treasuries, a key reserve asset for central banks.
“Given that the value of gold will not be affected by fiscal uncertainties or benefit in the context of a broad depreciation of the US dollar, we believe there is still room for central banks to further diversify their gold reserves,” Kowshik and Bindelli wrote.
Analysts also cited jitters over U.S. financial sanctions, broader geopolitical risks and unpredictable tariff policies under the Trump administration as additional drivers of central bank demand.
“Macroeconomic and geopolitical uncertainties are likely to continue to fuel higher demand for gold,” they wrote, raising their 12-month gold price target to $4,600 an ounce from $3,900.