Why Central Banks Keep Buying Gold Even as Prices Collapse

Gold's sharp retreat in the first half of 2026 has raised an uncomfortable question for investors: if the metal is supposed to be a safe haven, why is it falling — and who is still buying? The answer reveals a growing divergence between institutional sovereign strategy and short-term market sentiment driven by monetary policy expectations.

Gold recorded its fourth consecutive monthly decline in June, falling 11.7% after a 1.8% drop in May. The metal hit $3,942 on June 30, its lowest level since early November 2025. Viewed over the full quarter ending June 30, the loss reached roughly 16% — the worst quarterly performance since Q2 2013. The primary culprits are well known: a hawkish Federal Reserve and persistent geopolitical uncertainty in the Middle East have suppressed risk appetite for non-yielding assets like gold.

Major financial institutions have responded by slashing price targets. Goldman Sachs trimmed its year-end forecast to $4,900 per ounce. Deutsche Bank lowered its Q3 target to $4,300 and issued a more bearish scenario warning of a drop to $3,800 should the Fed deliver three to four rate hikes. These revisions reflect a consensus that tighter monetary conditions are the dominant near-term headwind.

Yet World Gold Council data for May tells a strikingly different story at the sovereign level. Central banks collectively purchased a net 41 tonnes of gold in May — a figure that underscores long-term structural demand entirely disconnected from short-term price action.

Poland's National Bank led all buyers, adding 18 tonnes in May alone — its fourth consecutive month of double-digit purchases. The country has accumulated 64 tonnes so far in 2026, bringing total reserves to 614 tonnes. This is not opportunistic dip-buying; it is a sustained, deliberate reserve diversification program that predates the current selloff.

The People's Bank of China added 10 tonnes in May, marking its 20th consecutive monthly purchase and its largest single addition since December 2024. China's gold reserves now stand near 2,331 tonnes. The consistency of Beijing's accumulation — regardless of price level — signals a strategic intent to reduce dollar exposure and reinforce reserve credibility over a multi-year horizon.

The Monetary Authority of Singapore returned to buying after a pause, acquiring 4 tonnes — its first purchase since September 2025. Notably, Singapore also announced plans to launch central bank gold vaulting services in October 2026, suggesting an institutional infrastructure build-out that aligns with growing regional demand for physical gold custody.

Uzbekistan and Kazakhstan added 9 and 7 tonnes respectively, further illustrating that emerging-market central banks remain net accumulators. Turkey and Russia, however, were net sellers in May, a reminder that the sovereign buyer base is not monolithic — geopolitical and fiscal pressures shape individual nation decisions.

The broader sentiment backdrop is supportive of continued demand. In the World Gold Council's 2026 survey, 89% of respondents anticipated that global gold reserves would rise over the next 12 months, while 45% expected their own institution's holdings to grow. These are striking figures given the price environment.

The critical analytical caveat is timing: the May data predates June's steep 11.7% selloff. Whether central banks maintained their conviction — or paused to reassess — will only become clear in the next monthly report. If buying continued through June's drawdown, it would signal an extraordinarily high institutional price floor and potentially limit downside. If demand softened, it would suggest even sovereign buyers have thresholds.

For investors, the takeaway is structural rather than tactical. Sovereign accumulation at scale — led by Poland, China, Singapore, and Central Asian nations — reflects a long-cycle shift away from dollar-denominated reserve assets. This dynamic does not prevent further short-term price weakness driven by Fed policy, but it does establish a durable demand base that contrasts sharply with retail and speculative outflows. Understanding this divergence is essential to reading gold's next move accurately.