Gold Caught Between Fed Leadership Shake-Up and Record Central Bank Purchases

LBMA gold plunged 7% on a hot CPI report, surging yields, and a new Fed chair, while central bank demand and Chinese buying remain robust, creating a macro vs. physical tug-of-war.

The LBMA gold price is undergoing a brutal reassessment, shedding seven percent in a single session on Friday to close at 361.89. The selloff — which leaves the metal down nearly six percent on the week — stems not from any collapse in physical demand, but from a toxic macro cocktail that has upended the rate outlook and thrust the Federal Reserve into a new era.

The trigger was a hotter-than-expected April US consumer price index that hit 3.8 percent, the highest reading in three years. Ten-year Treasury yields surged to 4.59 percent in response, and the dollar index climbed to around 99, hammering gold’s appeal as a non-yielding asset. Market pricing according to the CME FedWatch Tool now assigns a 45 percent probability to another rate hike this year, while the chance of a cut in June has dwindled to below three percent.

Compounding the rate shock is a leadership transition at the Fed. Jerome Powell exited on Thursday, and Kevin Warsh officially took over as president, inheriting a target range of 3.50 to 3.75 percent. Under the previous regime, markets had bet on an easing cycle. Now, as Collin Martin of the Schwab Center for Financial Research points out, rising inflation strips the new chair of political cover for looser policy. Norbert Hagen of ICM Investmentbank warns that inflation expectations risk becoming unanchored if the pause drags on.

Yet beneath the surface, the physical market tells a different story. Global demand hit a record 1,230 tonnes in the first quarter, with central banks alone purchasing 244 tonnes net. China’s central bank added another eight tonnes in April — the largest monthly increase since late 2024 and the eighteenth consecutive month of accumulation — bringing reserves to 2,322 tonnes, or nine percent of total foreign exchange reserves. In March, net imports stood at 143 tonnes, well above the prior month.

India, meanwhile, has reintroduced a 15 percent import duty on gold to support the rupee, adding a layer of demand restraint even as strategic reserve buying from official institutions remains robust. The tension is acute: short-term macro pressure from rising real yields and a stronger dollar collides with long-term central bank demand that shows no sign of abating.

Technical levels are coming into focus. In dollar terms, the LBMA fix was $4,535.37 on Friday, down 2.5 percent on the day and four percent for the week, with the monthly loss widening to 9.52 percent. The distance to the April high has stretched to roughly twelve percent. Support around $4,367 is the next downside marker, while the zone between $4,500 and $4,600 has seen strong buying interest amid the selloff.

The calendar this week will test that floor. Wednesday brings the release of the FOMC minutes, followed on Thursday by May’s purchasing managers’ indices and initial jobless claims, and on Friday by the University of Michigan inflation expectations survey. With 30-day annualized volatility already above 61 percent, any hawkish tilt in the data could renew the rout.

An easing of the Strait of Hormuz blockade — which has been driving energy prices and inflation expectations higher — could offer relief. Lower oil prices would take pressure off the inflation narrative and give the new Fed leadership more room to consider a mid-cycle cut. Until then, gold remains trapped between a macro storm and a structural buying wave.