The main central banks that buy gold are starting to sell gold.

Ask AI · How Has the U.S.-Israel-Iran War Changed Central Banks’ Gold Policies?

Reporter Chen Zhi

Since the outbreak of the U.S.-Israel-Iran war, gold prices have been volatile and trending downward, leaving Zhang Gang, a multi-strategy hedge fund manager on Wall Street with years of experience in gold investing, quite perplexed.

Throughout March, COMEX gold futures prices on the New York Mercantile Exchange (COMEX) fell by more than 13% at one point, marking the worst single-month performance since October 2008.

“Many fund managers on Wall Street are confused: in the face of escalating conflict in the Middle East and rising crude oil prices, why has gold suddenly lost its safe-haven and anti-inflation characteristics?” Zhang Gang said.

In late March, he found the answer.

Weekly data released by the Central Bank of Turkey show that starting the week of March 13, for three consecutive weeks, the Central Bank of Turkey reduced its gold reserves, cutting a total of 126.4 tons of gold—its largest scale reduction since 2018. Of that, more than half was completed through swap transactions under the “gold-for-foreign-exchange” model.

This prompted Zhang Gang to recall a prior piece of news—on March 4, the governor of the National Bank of Poland, Adam Glapiński, proposed raising roughly $13 billion by selling part of its gold reserves to support defense buildout.

As a precious metals futures broker on Wall Street, Pan Feng has witnessed firsthand the market shock caused by certain countries’ central banks selling their gold reserves. After the Central Bank of Turkey released signals of gold sales, in late March, the COMEX gold futures market saw a sustained wave of selling, driving the front-month COMEX gold futures contract to fall to $4,128.9 per ounce at one point.

Data published by the U.S. Commodity Futures Trading Commission (CFTC) show that, as of the week of March 24, asset management institutions on Wall Street led by hedge funds reduced net long positions in COMEX gold futures options by 1,314,400 ounces, with the reduction hitting the largest level since March.

The logic behind this is that hedge funds on Wall Street believe gold prices are facing dual pressure: on one hand, cooling rate-cut expectations from the Federal Reserve and a rise in the U.S. dollar index weigh on gold prices; on the other hand, gold reserve selloffs by central banks across multiple countries have removed a crucial source of buyer support.

As of 10:00 on April 3, the front-month COMEX gold futures contract was trading around $4,689.8 per ounce, rebounding from the late-March low of $4,128.9 per ounce. However, Wall Street remains divided on whether gold prices can quickly recover the ground they lost in March.

At present, investment institutions on Wall Street have begun to focus on a potential risk: if the conflict in the Middle East triggers a prolonged high-oil-price environment, more central banks may be forced to sell gold reserves to raise funds to cope with currency depreciation pressure at home and to purchase higher-priced energy.

Sudden transformation into a “major seller”

For the past four years, global central banks have been a “key buyer” in the gold market, accounting for about 20% of global annual gold demand.

According to data from the World Gold Council, from 2022 to 2024, global central banks’ average annual gold purchases exceeded 1,000 tons for three consecutive years. Even in 2025, when gold prices kept setting new highs, global central banks still purchased 863 tons—about 17.3% of that year’s global gold demand.

Among them, gold purchase by the central bank of Poland and the central bank of Turkey has been especially strong.

In its report “Global Gold Demand Trends Q4 2025 and Full Year,” the World Gold Council noted that the National Bank of Poland became the world’s largest official gold buyer for the second consecutive year. In 2025, it added 102 tons of gold, bringing its gold reserves to 550 tons.

The Central Bank of Turkey also “wouldn’t fall behind.” Between 2022 and 2025, the Central Bank of Turkey accumulated 325 tons of gold, bringing its gold reserves to 603 tons by the end of 2025, with an estimated valuation of about $135 billion.

Wang Lixin, CEO of the World Gold Council China, told The Economic Observer that in recent years, global central banks have been actively increasing their gold reserves mainly by using asset diversification to cope with the continuously escalating level of international geopolitical risk, and leveraging gold’s safe-haven attributes to preserve and enhance the value of reserve assets.

However, after the outbreak of the U.S.-Israel-Iran war at the end of February, these two central banks—those with the highest enthusiasm for adding to gold—suddenly became “major sellers.”

In just three weeks in March, the Central Bank of Turkey sold 126.4 tons of its gold reserves. In fact, it was a move born out of necessity. Since the outbreak of the U.S.-Israel-Iran war, the U.S. dollar index has surged, and the Turkish lira against the U.S. dollar has hit historical lows for 11 consecutive times, once falling to 44.35:1. This led to the withdrawal of more than $6 billion in overseas capital from Turkey’s equity and bond markets. To stabilize the domestic exchange rate and curb capital outflows, in March the Central Bank of Turkey spent about $25 billion in foreign-exchange reserves to intervene in the currency market.

This pushed Turkey’s foreign-exchange reserves down to the $43 billion warning line. To refill the liquidity in foreign-exchange reserves, the Central Bank of Turkey had no choice but to keep selling gold reserves.

Zhang Gang said, “The market expects the Central Bank of Turkey to continue selling gold reserves.” He analyzed that because Turkey’s energy supplies such as crude oil and natural gas depend mainly on imports, once crude oil prices break above $100 per barrel, Turkey needs to spend more than $20 billion extra per year to buy crude oil. The Central Bank of Turkey therefore needs to reduce its gold holdings further to obtain more U.S. dollar funds.

Poland’s central bank also pivoted abruptly.

In January, the National Bank of Poland still said it would increase its holdings by 150 tons, bringing its gold reserves to 700 tons. But on the fifth day after the outbreak of the U.S.-Israel-Iran war, the governor of the National Bank of Poland suddenly changed course: “We will sell down part of our gold reserves to fund defense construction.” The same day the National Bank of Poland signaled plans to sell gold reserves, the price of the front-month COMEX gold futures contract plunged from $5,400 per ounce to around $5,100 per ounce, and buying-on-hope sentiment for gold in financial markets cooled sharply, Zhang Gang said.

At the same time, the mark-to-market gains from global central banks’ gold purchases were also substantial, making gold reserves the priority target for reductions.

Pan Feng said selling gold reserves is the “iceberg tip” of a full-strength effort by global central banks to boost cash reserves amid the double shock of high oil prices and the depreciation of their domestic currencies.

Data released by the Federal Reserve show that, as of the end of March, the size of U.S. Treasury bond custody held in the custody of the Federal Reserve Bank of New York by foreign official institutions had fallen by $82 billion since February 25, to $2.7 trillion, the lowest level since 2012.

Financial institutions on Wall Street therefore judge that as long as the conflict in the Middle East continues to push oil prices higher and non-U.S. currencies keep depreciating, the magnitude of central banks selling gold and U.S. Treasury assets will likely only increase, not decrease.

Buying the dip with unrealized losses

The shift by these two central banks disrupted Wall Street investment institutions’ plan to buy the dip in gold.

After the front-month COMEX gold futures contract on March 16 fell below the $5,000 per ounce level, Wall Street launched a new wave of dip-buying in gold.

CFTC data show that, as of the week of March 17, asset management institutions led by hedge funds on Wall Street increased net long positions by 368,200 ounces in COMEX gold futures and options.

Zhang Gang also participated in buying the dip on gold.

Between March 16 and 19, he used roughly $5 million to buy net long positions in COMEX gold futures. “At the time, most asset managers on Wall Street thought gold had been unfairly hit,” Zhang Gang said. Even though oil prices surged, cooling the Federal Reserve’s rate-cut expectations and pushing the U.S. dollar higher (which is unfavorable for gold prices), Wall Street asset managers believed the financial markets would soon focus on higher inflation expectations driven by high oil prices and the global economic damage caused by the ongoing U.S.-Israel-Iran war. They thought gold’s safe-haven and anti-inflation attributes would shine again.

In this wave of gold dip-buying, multi-strategy funds and discretionary investment funds on Wall Street became the main forces. They used leverage of 2 to 3 times and adopted a “the lower it falls, the more we buy” strategy in COMEX gold futures. They also found that after the outbreak of the U.S.-Israel-Iran war, the VIX (the volatility index) stayed above 25 for an extended period, meaning market panic sentiment was near historical highs, which would help gold recover lost ground quickly.

Pan Feng believes that in the past, this investment logic had extremely high odds of success, but this time they miscalculated. The reason is precisely that they did not expect that, compared with the National Bank of Poland “signaling in advance” when selling gold reserves, the Central Bank of Turkey would be “selling first and explaining later.”

“Within three weeks, the Central Bank of Turkey sold 126.4 tons of gold reserves, quickly breaking the global financial institutions’ gold pricing framework,” Pan Feng analyzed. Given that in recent years global central banks have massively increased gold reserves, many global investment institutions treat global central banks as key gold buyers and as a price support in their gold investment models. But after the Central Bank of Turkey sold its gold reserves, they began to include global central banks in the category of “new uncertainty factors that would cause gold prices to fall.” As a result, they cut back on their gold positions ahead of the central bank’s sales.

During this period, commodity futures investment funds and quant funds became key forces behind the selling of gold. Several commodity futures investment funds reduced their gold position weights from 20% to 10%–12% in just the week of March 27, leading to another “many shorts kill the most shorts” tragedy in the COMEX gold futures market in late March.

During the interview, we learned that many COMEX gold futures positions held by investment institutions on Wall Street had average costs in the range of $4,300 to $4,800 per ounce. After futures prices fell below $4,500 per ounce, they had no choice but to sell their gold positions to stop losses and exit.

Zhang Gang said that he bought COMEX gold futures in mid-March at about $4,800 to $5,000 per ounce. When the price fell to $4,128.9 per ounce in late March, he at one point had unrealized losses exceeding $27k, forcing him to quickly take risk-mitigation measures—by adding to short positions in gold futures contracts. “There was even worse: some investment funds on Wall Street used 4 to 5 times leverage to buy the dip in COMEX gold futures, and the loss magnitude had already exceeded 17%,” Zhang Gang said.

A new round of games

On April 1, Zhang Gang attended a Wall Street fund investment salon.

During it, he noticed that more and more investment institutions on Wall Street had started to worry that central banks in multiple countries would sell gold, which would cause new downward pressure on gold.

A precious metals analyst at a Wall Street investment bank told Zhang Gang that an investment research report he wrote in mid-March was still supporting an optimistic outlook for gold prices regaining lost ground, because rising oil prices and the ongoing U.S.-Israel-Iran war would quickly restore market preference for gold’s anti-inflation and safe-haven attributes.

After the Central Bank of Turkey sold its gold reserves, this analyst’s newest investment research report completely overturned the earlier optimistic predictions for gold prices. Because he found that if more central banks emulate the Central Bank of Turkey’s approach and allocate the proceeds from selling gold reserves to buy expensive crude oil and stabilize their domestic currency exchange rates, in the short term gold prices would be unlikely to make new highs again—and could even face another round of declines.

In a metals market outlook report released in April, Mike McGlone of Bloomberg Intelligence said that the record high of gold in January at $5,626.8 per ounce may be a “once-in-a-generation” historic high.

Zhang Gang said that in this fund managers’ salon, fund managers who were pessimistic about gold prices had a slight edge. They generally believed that once global central banks are no longer major buyers in the gold market, the future central tendency of gold prices would be hard to continue the upward trend seen before the outbreak of the U.S.-Israel-Iran war.

However, there was also strong pushback from large investment banks on Wall Street against this “negative” view.

On March 30, analysts Lina Thomas and Daan Struyven from Goldman Sachs’ commodities research team issued a report stating that after the big drop in global gold prices in March, they expected global central banks’ gold-buying behavior to actually accelerate, with average monthly gold net purchases reaching about 60 tons. Combined with the expectation that the Federal Reserve may still cut rates twice this year, they forecast that the gold target price by end-2026 would still be $5,400 per ounce. If international geopolitical risks continue escalating and prompt the private sector to speed up diversification of asset allocation, they believe gold could rise to $6,100 per ounce.

Facing Goldman’s “support,” as well as the “pessimistic sentiment” among many fund managers, Zhang Gang admitted that he trusted the data more. In addition to the World Gold Council’s monthly data on global central banks’ gold increases (reductions), he also paid for real-time data from third-party research institutions to track the latest trends in global central banks buying and selling gold.

“Before these data come out, the bullets will fly for a little while longer,” Zhang Gang said. To guard against investment risks caused by large fluctuations in gold prices, at the end of March he hedged all long gold positions by buying equal-notional short positions in COMEX gold futures contracts, leaving no open risk exposure.

Pan Feng said that investment institutions are waiting for a clear signal: if the data show that global central banks are also buying and increasing holdings of gold, they will quickly close the shorts in their arbitrage positions and bet on gold quickly regaining lost ground and setting new highs. Conversely, if the data do not support this, they will close the longs in their arbitrage positions and “go all in” on gold continuing to pull back.

But Pan Feng found that most investment institutions are “praying” that global central banks’ gold increases will drive gold to rebound quickly. Because their gold position weights are above 10%, they fear an upside surprise—when gold pulls back beyond expectations—which would drag down the net value of the entire investment portfolio significantly, triggering new redemption demands and pressure for accountability from contributors.

On April 2, UBS released a report saying that in the face of the dramatic fluctuations in gold prices in March and rising geopolitical risks, the structural trend of global central banks increasing their gold reserves has not changed. UBS expects global central banks’ gold purchases this year to be 800–850 tons, slightly below 863 tons in 2025.

UBS also specifically pointed out that some of the Central Bank of Turkey’s gold-reserve selloffs were conducted through swap transactions rather than a direct selloff, and it does not rule out that in the future the Central Bank of Turkey may “redeem” this portion of the gold reserves.

In response, Zhang Gang said that it remains unknown whether investment institutions on Wall Street would accept this view. Starting in April, Wall Street fund managers have set a simple and practical investment formula: as long as oil prices continue to rise, global central banks will have to sell more gold reserves (to purchase expensive energy), and the downward pressure on gold prices will increase accordingly.