# Gold's "Central Bank" Backer Collapsed? War Forces Policymakers to Prioritize Energy Over Gold Purchases

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Source: Jin10 Data

Since late 2022, central bank demand has been a key driver behind the historic rise in gold prices, but this support may be coming to an end—at least for the foreseeable future—as the Iran conflict forces policymakers to prioritize energy security and economic stability over diversification of reserves.

This shift in priorities comes at a particularly fragile moment for the gold market. Gold prices have just experienced their most severe weekly decline since the 1980s, after senior investment strategist Rob Haworth of U.S. Bank Wealth Management described earlier this year’s rally as a speculative “blow-off top.”

After reaching a record high at the end of January, gold has struggled to regain upward momentum despite escalating geopolitical tensions—an unusual divergence for a traditionally safe-haven asset.

Haworth believes that the breakdown of gold’s typical behavior reflects a broader shift in market dynamics. Rising nominal and real interest rates are diminishing gold’s appeal, while expected safe-haven capital flows are favoring liquidity—namely the dollar—over gold or U.S. Treasuries, which are conventional hedges.

Even government bonds have failed to attract demand, with yields rising to multi-month highs, highlighting that inflation and supply shocks are dominating investor thinking. Haworth notes that in the current environment, even Treasury Inflation-Protected Securities (TIPS) are not considered safe havens.

“They are also sensitive to duration, and with real yields rising, they are also under pressure,” he said.

Meanwhile, speculative positions in gold are becoming an increasingly negative factor. Haworth points out that the $4,500 per ounce level is a key psychological threshold, and if investors are forced to close positions under broader portfolio pressures, gold prices could fall further.

“Speculators are facing a tough decision now. I think many tried to wait out the volatility in February, but now a lot of that capital is underwater. The situation could only get worse,” he said.

Haworth states that not only are speculators underwater, but they also cannot rely on central banks to step in and provide much-needed support.

He explains that many of the central banks that have driven gold higher are also energy net importers. As oil prices soar, costs for liquefied natural gas and fertilizers have surged, and their fiscal resources are being redirected to ensure essential supplies.

Haworth speculates that capital originally allocated to gold reserves is now being used to “sustain livelihoods”—funding energy, food, and critical infrastructure needs.

This reallocation of funds helps explain why gold has failed to respond positively to escalating geopolitical risks. He says that in the current environment, safe-haven demand is being replaced by a scramble for liquidity.

Countries and companies are prioritizing acquiring dollars to purchase energy and maintain supply chains, rather than accumulating gold.

“The longer this situation persists, the worse it gets; it supports oil prices and damages the global economy, but it doesn’t help gold,” he said. He highlights a key paradox facing investors.

Looking ahead, the duration of the conflict—especially ongoing disruptions to energy supplies—will be a critical factor. Haworth views the four-to-six-week window set by the Trump administration as a pivotal turning point.

He says if oil prices remain high into mid-April, businesses and consumers will begin making longer-term adjustments, including passing higher costs onto end markets. This could further deepen inflationary pressures and tighten financial conditions.

For gold, this creates a tough backdrop. Supply-driven inflation often pushes bond yields higher, which historically puts pressure on non-yielding assets. Meanwhile, traditional defensive assets have failed to provide protection, reducing the available hedging tools for investors.

In this environment, Haworth sees no signs of structural shifts in the dollar or U.S. bond markets that would immediately restore gold’s appeal.

He adds that he expects gold to undergo a period of consolidation as speculative bubbles are pricked and macroeconomic conditions stabilize.

He further notes that central bank purchases may eventually resume, but only after geopolitical disruptions ease and energy markets normalize. Until then, gold investors will navigate an unfamiliar environment—one where war, inflation, and supply shocks are not driving safe-haven demand but are instead shifting capital away from gold.

He says, “What’s happening now is a reset. It’s not a price level where they will accumulate gold… It’s not about central banks being sensitive to price. They’re not hedge funds valuing gold reserves based on market value, but now, due to societal demand, they have needs for other assets that are more important and scarce right now.”

French Foreign Trade Bank: Gold Price Selloff Indicates Central Bank Sales Are Not Just Market Rumors

Another analyst also suggests that after significant purchases, central banks may be forced to sell gold, which could face further downside risk.

Bernard Dahdah, a precious metals analyst at French Foreign Trade Bank, warned in a report last Friday that due to increasing global economic uncertainty and inflation concerns, gold could fall to $4,000 per ounce.

In his latest comments on Monday, Dahdah further stated that the recent selloff in gold indicates that central bank sales are no longer just rumors, especially when combined with last week’s warnings. He added that rising inflation and a potential shift toward hawkish monetary policies globally are bearish for gold but do not fully explain the recent plunge.

He said, “We are less inclined to see inflation concerns or a shift in central bank policies as the main drivers. If that were the case, we would see significant volatility in the dollar index and 10-year U.S. Treasury yields simultaneously. But on Monday morning, neither moved much. Our view is that some central banks are likely selling gold to defend their currencies or fund energy purchases. With gold prices falling sharply late last week and U.S. 10-year yields rising significantly over the past two trading days, we may also be seeing larger-than-usual physical-backed ETF sell-offs.”

Dahdah added that the two main drivers behind last year’s unprecedented gold rally have reversed.

He said, “If our previous analysis proves correct, gold could face downside pressure in the foreseeable future.”

However, while Dahdah does not rule out the possibility of gold falling below $4,100 per ounce again, he also sees lower prices as a long-term buying opportunity.

In his report last Friday, he stated, “We do not believe the long-term trend for gold is at the low end of $4,000 per ounce. If energy infrastructure damage is limited and oil prices can quickly return to pre-war levels, central banks’ willingness to buy gold could increase. This could, in turn, push gold back above $5,000 per ounce for a sustained period.”