Gold’s Reality Check: PBoC Keeps Buying, Speculators Loaded Up, and the Dollar Strikes Back
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Gold entered June facing one of its most difficult weeks in several months. A combination of stronger-than-expected U.S. employment data, rising Treasury yields, a surging U.S. dollar, and shifting geopolitical narratives produced a sharp repricing across the precious metals complex. The result was a 3.55% weekly decline in gold, its worst performance in approximately two and a half months.
Yet beneath the selloff, the underlying physical market tells a more nuanced story. China’s central bank continued adding to its gold reserves, increasing holdings by approximately 10 metric tons during the month and bringing total reserves to a record 2,331.51 tons. At the same time, London vault inventories continued to rise, reaching 9,392 tons in May. Meanwhile, positioning data shows that speculative investors were actually increasing exposure before the selloff occurred, with managed money traders raising net long positions by 15% week-on-week.
Taken together, these figures suggest that the recent decline was driven less by deteriorating physical demand and more by a macro-driven repricing event. The market’s attention has shifted from central bank buying and geopolitical risk toward interest rates, inflation expectations, and the strength of the U.S. dollar. The question now is whether this represents the start of a deeper correction or merely a pause within a broader long-term uptrend.
One of the most important long-term themes supporting gold remains unchanged: central bank demand continues to grow. The latest data from China shows that the People’s Bank of China added approximately 320,000 ounces of gold during the month, equivalent to roughly 10 metric tons. This brings total official gold reserves to 2,331.51 tons, representing another record high for the country’s holdings.
While the pace of buying has slowed compared with the aggressive accumulation phase seen during 2023, the direction remains clear. China continues to add gold month after month, steadily increasing its reserve allocation. This distinction is important because central bank buying tends to be less sensitive to short-term price fluctuations than speculative investment flows. The PBoC is not attempting to trade weekly price swings; it is gradually building long-term strategic reserves.
The latest increase of 9.95 tons may appear modest compared with previous accumulation periods, but when viewed over multiple years, the trend remains significant. Each additional month of purchases reinforces the role of gold as a reserve asset within China’s broader financial strategy.
The Commitment of Traders data provides an interesting look at what happened immediately before the recent decline. Contrary to what some market participants might expect, managed money traders were not reducing exposure ahead of the weakness. In fact, they were increasing it.
Net long positions increased by approximately 15% week-on-week to 112,000 contracts. The majority of this increase came from aggressive short covering, with net short positions falling by approximately 36%, or 9,643 contracts. At the same time, new long positions also increased by roughly 4.1%, equivalent to approximately 5,000 contracts.
This positioning data suggests that many speculators were becoming increasingly optimistic about gold’s prospects immediately before the correction occurred. The subsequent selloff therefore appears less like a reaction to deteriorating positioning and more like a macroeconomic shock that forced market participants to rapidly reassess expectations.
The fact that managed money was actively adding exposure heading into the decline also helps explain why the subsequent move lower felt particularly violent. When positioning becomes more one-sided, unexpected macro developments often create sharper price adjustments.
The catalyst for the selloff was a stronger-than-expected U.S. employment report. Non-farm payrolls came in at 172,000 jobs, exceeding expectations and reigniting concerns that inflation pressures may remain persistent.
For gold, the implications were immediate. Stronger economic data reduced expectations for near-term rate cuts, pushed Treasury yields higher, and triggered a breakout in the U.S. Dollar Index. Since gold does not generate income, rising yields increase the opportunity cost of holding bullion relative to interest-bearing assets. At the same time, a stronger dollar tends to create additional headwinds for precious metals by making them more expensive for non-U.S. buyers.
The result was what many traders described as a “perfect storm.” Gold, silver, and platinum all came under pressure simultaneously as markets repriced the likelihood of interest rates remaining higher for longer. This shift in expectations occurred alongside ongoing geopolitical uncertainty surrounding Iran and the United States, creating an environment where multiple competing narratives were influencing price action simultaneously.
Despite the weakness in prices, physical inventories in London continued to expand. May 2026 LBMA data shows gold holdings rising to approximately 9,392 tons, representing a 0.21% month-on-month increase.
The increase may appear small in percentage terms, but London remains the most important gold storage and settlement hub in the world. Changes in LBMA inventories therefore provide valuable insight into broader physical market trends.
The fact that inventories continue to grow while central banks continue accumulating suggests that physical gold availability remains sufficient to satisfy demand. Unlike silver, where inventory movements can often be dramatic, gold markets tend to adjust more gradually. The current inventory trend points toward a market that remains well supplied, even as central bank demand continues supporting long-term fundamentals.
One area that has cooled alongside prices is the Shanghai premium. Recent data shows Chinese gold premiums retreating to near parity with LBMA benchmarks, finishing the week at approximately 0.07%.
This marks a noticeable moderation from the stronger premiums observed earlier in the year. However, it is important to distinguish between a declining premium and a discount. The market has not shifted into negative territory. Instead, premiums have simply narrowed as domestic demand and international pricing have moved into closer alignment.
The flattening of premiums suggests that Chinese buyers have become somewhat more price sensitive following the strong rally earlier in the year. Yet the absence of meaningful discounts indicates that demand remains present rather than disappearing altogether.
Taken together, the latest data points describe a physical market that is slowing but not deteriorating. Central banks continue accumulating gold, London inventories continue expanding modestly, and Chinese premiums remain near neutral rather than falling into discount territory.
At the same time, speculative positioning and macroeconomic expectations have become the dominant drivers of short-term price action. This creates a market where physical demand remains constructive, but futures and currency markets exert a greater influence on day-to-day movements.
The distinction matters because it helps separate cyclical volatility from structural trends. The recent selloff was primarily driven by changing expectations around interest rates and economic growth, not by evidence of collapsing physical demand.
For bullion dealers, the most important observation is that physical demand remains intact despite the correction. China’s central bank continues adding to reserves, LBMA inventories continue growing, and Shanghai premiums remain near parity rather than falling into discount territory. These are not the characteristics of a market experiencing a collapse in underlying demand.
For conservative investors, the recent decline may be viewed within the context of a broader accumulation trend. Central bank purchases remain active, geopolitical uncertainty has not disappeared, and gold continues to play a strategic role in reserve diversification. Short-term price weakness does not necessarily invalidate the longer-term rationale for holding physical gold.
For traders, the focus now shifts toward inflation data, Federal Reserve communications, and Treasury yields. The recent selloff pushed momentum indicators into deeply oversold territory, suggesting that the market may be vulnerable to sharp countertrend rallies if macro expectations shift again. Near term, gold may continue consolidating between roughly $4,400 and $4,700 per ounce as markets digest the implications of stronger economic data and reassess the path of interest rates.
Over the longer term, the outlook remains constructive provided central bank demand continues at current levels. The PBoC alone has added approximately 10 tons in the latest month, and there is little evidence that reserve diversification efforts are ending. If inflation remains sticky, geopolitical tensions persist, and global reserve managers continue accumulating bullion, the longer-term path toward a retest of the $5,000 per ounce region remains achievable. Conversely, a sustained period of rising real yields, declining central bank purchases, and weakening physical premiums would present a more challenging environment for gold. At present, however, the data continues to suggest a market experiencing a macro-driven correction rather than a structural reversal.
Hugo Pascal’s observation about the AU9999 contract hitting a 10-week volume high underscores the increasing significance of physical gold trading on the Shanghai Gold Exchange. This trend not only highlights robust domestic demand in China but also reflects broader shifts in the global gold market toward physical-backed assets.
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