Gold Rally Driven by Speculation, Faces Key Test at Jackson Hole, Citi Says

Gold's recent breakout rally has been driven largely by speculative trading rather than fundamental physical demand, leaving the precious metal vulnerable to commentary from the upcoming Jackson Hole economic symposium, according to a note from Citi.

The bank told clients on Tuesday that the rally, which has cleared key technical resistance, was aided by a weaker U.S. dollar and lower interest rates following a U.S. Treasury announcement of increased long-end buybacks.

Speculative Flows Drive Rally

Citi analysts argue that the move higher is not yet supported by broad-based buying. The firm noted that the bulk of the price gains occurred during U.S. trading hours, while prices were flat to lower in Asian and European sessions.

"The recent rally has been largely driven by spec flows so far, in particular futures inflows," Citi wrote. This is consistent with CFTC data showing that managed money net length is near its year-to-date highs, though still below peaks seen in 2024-25.

Physical Demand Lags

For the rally to be sustainable, Citi believes physical demand must increase. The bank highlighted signs of weakness in key physical markets, including:

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• Chinese retail demand, which is said to remain weak, with investors range-trading rather than following the upward trend.
• Indian premiums, which reportedly remain in negative territory.

Technically, gold rebounded from a bottom near $4,000 an ounce and consolidated around its 100-day moving average of roughly $4,380 before its recent breakout. Citi noted that while indicators like the MACD and DMI are positive, the Relative Strength Index (RSI) near 72 points to stretched, though not yet extreme, conditions.

Jackson Hole Looms as Key Risk

Looking ahead, Citi identified the speech by Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium as a "binary risk" for gold prices. A hawkish tone from the central banker would likely halt the rally, a scenario in which the bank said it would look to buy dips in the low $4,000s.

Conversely, a surprisingly dovish message from the Fed would be considered "ultra-bullish" for the precious metal, according to the note.