The Czech National Bank holds more gold in its foreign exchange reserves than at any point in its history. After a record-breaking year, gold is now going through a significant correction. Can retail investors take a page from the CNB’s book?
The CNB is not the only central bank buying gold. Last year, central banks globally purchased a combined 863 tonnes. The motivation behind these purchases is straightforward. Banks buy gold to diversify their massive foreign exchange reserves, insulating themselves from the risks that come with holding traditional currencies. The CNB justifies its gold purchases by noting that gold reduces portfolio volatility and carries no counterparty risk.
Gold as an asset generates no yield, so its price is driven by the balance of supply and demand. Beyond factors like central bank and retail investor appetite, that balance is also shaped by macroeconomic variables.
The key indicator for gold prices is the so-called real interest rate, meaning the return on a bond after subtracting inflation. Since the closure of the Strait of Hormuz, inflation expectations have been rising. The latest US inflation report showed a reading of 4.2%, while in the Czech Republic inflation remains relatively stable at 2.1%. The expected path of interest rates is nevertheless moving higher. The ECB is likely to raise rates at its meeting later this week, while on Wall Street the consensus now points to one rate hike in the US by year end, compared to the rate cuts that were being priced in before the Strait of Hormuz was closed.
The second important factor is the US dollar. A stronger dollar weighs on gold prices, since gold is priced in dollars globally. After a sharp weakening in 2025, the dollar has gained around 2% against other currencies so far this year. Higher expected interest rates push the dollar higher, which in turn puts downward pressure on gold.
Both of these mechanisms are significantly influenced by geopolitics. The logic of gold as a safe haven in times of geopolitical uncertainty has run into a paradox. The oil crisis is now working against it.
What this means for Czech retail investors is reflected in eToro’s Retail Investor Beat survey. Half of respondents (51%) currently hold gold, with 15% having started investing only in the past year. Investor sentiment is however deteriorating. In mid-2025, 58% of respondents expected gold to rise further. By the first quarter of this year that figure had fallen to just 44%.
The question is when, or whether, the situation in the Persian Gulf will calm down enough for the Fed to start thinking about cutting rates again. Until that happens, gold will face pressure from both sides and further muted performance can be expected.
