Julius Baer reports that central banks are shifting from U.S. bonds to gold.

The recent surge in gold prices is driven by central banks increasing their gold holdings while reducing their positions in US Treasury securities. This trend was highlighted in a market note from the Swiss group Julius Baer, which predicts that although gold prices will remain elevated, significant further increases are unlikely. On Wednesday the 15th, gold futures rose by 1.36% to $2,392.05 per ounce.

Carsten Menke, head of next-generation research at Julius Baer, explains that the gold rally is due to a higher willingness among buyers to pay, coupled with some speculative activity, rather than a significant surge in demand.

Menke suggests that monetary authorities, such as the People's Bank of China, have a greater willingness to pay for gold compared to Western investors, driven more by political than economic motives. However, he notes that this shift is "much less widespread than thought."

Julius Baer posits that the Chinese central bank has been reducing its holdings of American Treasury bonds to lessen dependence on the dollar and avoid potential sanctions. Consequently, central bank purchases are expected to keep gold prices structurally high, but not necessarily drive them higher.

The Swiss group anticipates more risks than opportunities for gold in the medium and long term but emphasizes the metal's crucial role in safeguarding against economic and systemic risks in financial markets.