Citi: Gold's Rally Fueled by Speculators, Faces Key Test at Jackson Hole

Gold's recent rally, which has pushed the precious metal past key technical resistance levels, is primarily fueled by speculative capital inflows and faces a significant risk of a pullback ahead of the Federal Reserve's annual Jackson Hole symposium, according to a note from Citi on Tuesday.

Speculative Flows Fuel Breakout

Citi analysts noted that the rally gained momentum from a weaker U.S. dollar and falling interest rates after the U.S. Treasury announced an increase in its long-term bond buyback program. The price of gold established a firm bottom around $4,000 per ounce between late June and July before breaking out above its 100-day moving average of approximately $4,380.

The bank's report highlighted that while the rally is technically sound, it is largely speculative in nature. Key points include:

• Technical indicators like the MACD and DMI remain positive.
• The Relative Strength Index (RSI) is near 72, indicating overbought conditions but not yet at an extreme level.
• CFTC data shows that managed money net-long positions are near their highs for the year, though still below the peaks seen in 2024 and 2025.

"This rally is currently primarily driven by speculative inflows, especially from futures," Citi wrote. "We believe that for the rally to be sustained, physical demand must follow."

Physical Demand Lags

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A key concern highlighted by Citi is the notable absence of strong physical demand to support the price surge. The report observed that most of the gains have occurred during U.S. trading hours, with prices remaining flat or even declining during Asian and European sessions.

Furthermore, the bank pointed to weak physical markets in key regions. Retail gold demand in China remains soft, with investors reportedly range-trading rather than chasing the upward trend. Meanwhile, gold premiums in India continue to be negative, signaling tepid local buying interest.

Jackson Hole Poses 'Binary Risk'

Looking ahead, Citi has identified the Jackson Hole economic symposium as a "binary risk" event that could determine gold's next major move. The market is closely awaiting remarks from the Federal Reserve Chair for signals on future monetary policy.

A hawkish tone could abruptly halt the current rally, though Citi stated it would view a pullback to the low $4,000s as a buying opportunity. Conversely, a dovish surprise from the Fed would be considered "extremely bullish" for gold, potentially providing the fuel for a more sustained advance.