The FED continues to exert relentless pressure on precious metals.

Indeed, on the one hand, at a recent press conference, FED Chairman Jerome Powell hinted that he would slow the pace of FED rate hikes while signaling that final rates could peak at a higher level.

Similarly, after this conference, US rates and the dollar jumped. The FED also stated that bringing inflation down to 2% remained a top priority, which triggered a move in gold prices.

In this context, it is worth noting that under certain circumstances, high inflation tends to be bullish for gold when the market questions the ability of the central bank to combat it, as it did during the 1970s.

Conversely, high inflation tends to be bearish for gold when the market gives credit to the Central Bank's ability to reduce it as in the 1980s with Volcker's fight against inflation.

In any case, the message shared by the FED that it is willing to sacrifice growth to control inflation has helped keep inflation rates at breakeven. Consequently, as a result of this practice, ETFs and speculative gold positions have fallen as the effect of higher real rates has offset the impact of growing recession fears. 

However, in view of rising inflation in the face of the current economic climate, investment in precious metals by investors has been analysed on the upside with the gold price steadily rising.

On the other hand, it has been studied for some time that Central Bank gold purchases, particularly in emerging markets, have just reached a record high of 400 tonnes, the largest quarterly figure ever recorded and 300 tonnes above trend.

In any case, this buying spree by emerging market central banks cannot be explained solely by downward buying behaviour or low interest rates. 

They are particularly impressive given the continued strength of the dollar in the third quarter which, all else being equal, would normally have depressed non-dollar gold purchases. 

It also means that, even without new gold purchases in Q4, 2022 should be a record year for central bank gold demand.

At the same time, in a scenario where a US recession leads to a turning point in the US monetary cycle, it is estimated that gold could rise by 20-30% depending on the degree of Fed tapering.

Furthermore, the FED's results indicate that to meet an additional 350 tonnes of CB demand through the destruction of jewellery demand or the increase in scrap, gold needs to rise by 10%. In a less extreme scenario where purchases are reduced to 250 tonnes per quarter over the next year, we believe that gold could rise will evolve, all else being equal.

In other words, massive purchases of physical gold by central banks have been offset by even more massive sales of leveraged paper gold positions and derivatives. As a result, the price of gold fell as investor selling outpaced central bank buying.

In conclusion, while the decline in US ETFs may continue, European sell-offs should slow. 

Thus, structurally higher central bank demand should help absorb additional ETF sales, reinforcing the asymmetry in gold price performance.