XAU/USD Nears $4,120 as ETF Buyers Stay Cautious

Gold climbed towards $4,120 per ounce on 22 July, reaching its highest level in almost two weeks. Spot gold rose 0.9% to approximately $4,113.73, while August US futures advanced to around $4,119.10. The immediate explanation was technical buying, with traders also watching next week’s Federal Reserve meeting and renewed disruption risks in the Middle East.

However, the price rebound does not yet represent a broad return of every major gold buyer.

Short-term futures traders have increased their exposure. Central banks continue to accumulate gold for reserve diversification. Yet global gold ETFs suffered heavy redemptions in June, while Chinese wholesale demand remains weaker than its historical average.

The current rally is therefore supported, but the quality of the buying is uneven.

Who is buying gold now?

The buyers supporting gold are not all participating with the same strength or the same investment horizon.

Futures and tactical funds

Short-term funds have increased their exposure as gold recovered from its June low. This group is currently providing much of the immediate momentum, but its positions can change quickly when US yields or Federal Reserve expectations shift.

Gold ETF investors

Global gold ETFs recorded substantial outflows in June. This suggests that broad Western portfolio demand has not yet fully confirmed the rebound, even though prices have moved higher.

Central banks

Official-sector purchases have continued despite price volatility. Central banks remain the most durable source of structural demand because their buying is generally linked to reserve diversification rather than short-term price movements.

Chinese investment demand

Chinese gold ETF demand was positive during the first half of the year, and the People’s Bank of China continued to increase its reserves. However, private physical demand remains mixed, particularly in the jewellery and wholesale markets.

Jewellery and wholesale buyers

Physical demand improved from the weak levels recorded in May, but it remains soft compared with historical averages. This group is therefore unlikely to be the main force behind the current rally.

The strongest short-term driver and the strongest long-term source of support are not the same. Futures positioning is helping prices rise now, while central-bank accumulation is providing a deeper floor. ETF investors—the group most capable of turning a rebound into a broader institutional trend—remain cautious.

Short-term leader: futures and technical buyers

Reuters attributed the 22 July move partly to technical buying after gold reached its highest price since 10 July. The rally followed a break of the short-term downward structure that had developed earlier in the month.

Official CFTC data also show that managed-money traders were rebuilding bullish exposure before the latest advance.

As of 14 July, managed-money traders held 136,905 long gold futures contracts and 16,126 short contracts. That produced a net-long position of 120,779 contracts. Based on the weekly changes published by the CFTC, the net position increased by 4,618 contracts from the previous week.

This is meaningful because it shows that professional speculative funds were adding exposure while gold was attempting to stabilise above its June low.

It does not prove that a sustained trend has begun.

Futures positions can be increased or closed quickly. If Treasury yields rise after the Federal Reserve meeting, the same funds that supported the breakout may reduce exposure. This type of buying can generate strong price movement without creating a durable investment floor.

The current rebound therefore has momentum, but part of that momentum belongs to capital that is highly sensitive to the next policy headline.

Missing confirmation: Western ETF allocations

Gold-backed ETFs provide a better measure of whether portfolio investors are making a broader strategic allocation to the metal.

That confirmation is still incomplete.

Global physically backed gold ETFs recorded outflows of US$8.9 billion in June, reducing their collective holdings by 74 tonnes to 4,047 tonnes. North American funds accounted for US$5.5 billion of those redemptions, bringing the region’s first-half outflows to US$7.7 billion—the weakest first half since 2013.

The full first-half picture was less negative. Global ETF flows remained positive by US$8 billion, and total holdings increased by 18 tonnes during the six months. Asian inflows were particularly strong earlier in the year.

Nevertheless, June showed that Western investors remain highly sensitive to the opportunity cost of holding gold.

A stronger dollar, higher real yields and expectations of tighter Federal Reserve policy encouraged investors to reduce allocations. Gold does not generate interest income, so it becomes less attractive when inflation-adjusted bond yields rise.

This means the move towards $4,120 is not yet being led by a large return of North American ETF capital.

That distinction matters. Futures buying can lift gold through a technical barrier, but sustained ETF inflows can absorb physical supply and maintain demand for months.

A genuine shift in North American ETF flows would therefore be a more important bullish signal than another isolated rise in speculative futures positions.

Structural support: central banks continue to accumulate

Central-bank purchases remain the strongest argument against interpreting every gold decline as the beginning of a structural bear market.

Official gold reserves increased by a net 41 tonnes in May. Poland purchased 18 tonnes, China added 10 tonnes, while Uzbekistan, Kazakhstan and Singapore were also net buyers. Poland had accumulated 64 tonnes during the first five months of the year.

China then reported an additional 15-tonne purchase in June, its largest monthly addition since October 2023. The People’s Bank of China increased its holdings by 40 tonnes during the first half of 2026, extending its reported purchasing streak to 20 consecutive months.

This buying serves a different purpose from ETF or futures investment.

Central banks are generally not trying to profit from a move over several trading sessions. They hold gold to diversify reserves, reduce exposure to the credit risk of another country’s assets and provide protection during geopolitical or financial stress.

The World Gold Council’s 2026 survey found that 89% of participating reserve managers expected global central-bank gold reserves to increase over the following 12 months. A record 45% expected their own institutions to increase their holdings.

Central-bank demand is therefore the most durable buyer in the market.

However, it should not be treated as a precise timing indicator.

Central banks can purchase during both rising and falling markets. Their activity may limit the depth of a decline without producing an immediate breakout. They are more useful for identifying a structural floor than forecasting where gold will trade at the end of the week.

Chinese demand is divided between official and private buyers

China provides the clearest example of why the phrase “Chinese gold demand” is too broad.

The People’s Bank of China is buying consistently. Chinese gold ETFs also produced a strong first half, attracting approximately RMB40 billion, or US$5.6 billion, despite record outflows during June. ETF holdings increased by 29 tonnes during the first six months.

Private physical demand is less convincing.

Gold withdrawals from the Shanghai Gold Exchange increased by 36% in June compared with May, partly because falling prices encouraged opportunistic restocking. However, first-half withdrawals totalled 598 tonnes, 12% below the same period one year earlier and 27% below the ten-year average.

Jewellery demand also remained weak, while early-July trading volumes and local price premiums indicated that private buyers were not aggressively chasing the rebound.

The result is a divided Chinese market:

• the central bank is accumulating for strategic reasons;

• institutional ETF demand was positive over the first half;

• wholesale and jewellery demand remains restrained by high prices.

This is supportive for gold, but it is not the same as a broad physical-demand surge.

Why gold rose when geopolitical tension appeared to ease

Gold’s movement on 21 July is particularly useful for identifying what the market is currently trading.

Prices rose more than 1% while investors considered the possibility of progress in US–Iran diplomacy. Normally, reduced geopolitical risk might be expected to weaken a safe-haven asset. Instead, gold benefited from a broader commodity rally and expectations that de-escalation could reduce oil-driven inflation pressure. The move was also supported by a technical breakout.

One day later, gold rose again while threats to Red Sea shipping brought geopolitical risk back into focus.

The two sessions show that gold is not currently reacting to one simple “risk-on or risk-off” signal.

Escalation can support gold through demand for protection.

De-escalation can also support gold if it lowers oil prices, reduces inflation fears and decreases the probability of higher interest rates.

The common variable is not necessarily geopolitical fear itself. It is the effect that geopolitical developments have on real yields and the expected path of US monetary policy.

That is why calling the current move a pure safe-haven rally would be misleading.

The Federal Reserve remains the test for tactical buyers

The Federal Reserve’s June projections showed why gold traders remain cautious.

FOMC participants projected median 2026 PCE inflation of 3.6% and core PCE inflation of 3.3%, both well above the central bank’s 2% objective. The median year-end policy-rate projection was approximately 3.625%, although individual forecasts were widely dispersed.

Economists surveyed ahead of the July meeting expected the Fed to keep its key rate unchanged for the remainder of 2026 as policymakers continue to address persistent inflation.

For gold, an unchanged policy rate can produce two very different outcomes.

Gold may rise if the Fed emphasises weaker growth, improving inflation or the possibility of eventual easing.

Gold may fall even without a rate increase if the Fed signals that rates must remain elevated for longer and Treasury real yields rise.

The decision itself may therefore be less important than the explanation accompanying it.

Three tests that would confirm a stronger gold trend

Test 1: ETF flows must stop contradicting the price

A rally led mainly by technical funds can continue, but it remains vulnerable to rapid profit-taking.

Weekly or monthly inflows into North American gold ETFs would show that longer-horizon investors are beginning to rebuild strategic exposure. Without that change, the market remains dependent on futures positioning, central-bank support and headline-driven trading.

Test 2: Gold must absorb high real yields

The World Gold Council estimates that, all other factors being equal, a 25-basis-point decline in the US ten-year yield could correspond to an approximately 1.75% increase in gold. The relationship also works in the opposite direction: rising yields increase the cost of holding a non-interest-bearing asset.

If gold continues rising despite stable or higher real yields, that would indicate central-bank and investment demand is becoming strong enough to overcome the interest-rate disadvantage.

Test 3: The $4,000 area must remain a demand zone

The LBMA Gold Price reached a first-half low of $4,001.80 on 25 June, while spot gold briefly fell to $3,959.33 on 24 June.

This makes the area around $4,000 more than a psychological round number. It is where the June decline encountered enough demand to produce a recovery.

Holding above that zone would support the view that central-bank accumulation and selective investment buying are establishing a floor.

A renewed break below approximately $3,960 would indicate that those buyers are not yet strong enough to prevent another phase of liquidation.

XAU/USD assessment

The current gold rebound is real, but it has not yet received equal confirmation from every major buyer.

Futures and technical traders are providing the immediate momentum. Managed-money positioning had already become more bullish before gold approached $4,120.

Central banks remain the strongest structural source of demand. Their purchases are less sensitive to short-term price changes and continue to support gold’s long-term reserve role.

ETF investors are the missing link. Global first-half flows were positive, but June’s large redemptions—particularly in North America—show that Western portfolio demand remains cautious.

Chinese demand is also divided. The PBoC continues to accumulate, while private wholesale and jewellery demand remains relatively soft.

The rally can extend without immediate ETF confirmation, especially if the dollar or real yields decline. However, a durable move beyond the current two-week high would be more convincing if ETF flows turn positive and gold continues to attract buyers despite restrictive US interest rates.

For now, gold has a strong floor and improving momentum. It does not yet have fully aligned participation.