Gold Holds Above $4,350 as India's Tariff Shock Collides with Fed's First Dot Plot Under Warsh

Gold hovers near $4,365 as India's import duty hike crushes physical demand, while a dovish Fed outlook and US-Iran peace deal ease inflation fears and buoy the metal.

Gold markets are wrestling with an unusual schism this week. Physical demand in the world's largest consumer, India, has cratered after a steep import-duty hike, yet macro tailwinds — a US-Iran peace accord and a pivotal Federal Reserve meeting — have kept the metal buoyant. The yellow metal recently changed hands near $4,365 an ounce, extending a three-session rally from around $4,336, as traders weigh conflicting forces.

India's Demand Drought

New Delhi's decision to lift import taxes on gold from 6% to 15% has rattled the physical market. The move, aimed at curbing a widening trade deficit exacerbated by high oil-import bills, has hammered local demand. Dealers are offering discounts of as much as $87 per ounce to entice buyers — a stark signal of how far appetite has fallen. Jewellers report thinning foot traffic as the wedding season, typically the biggest demand driver, winds down. Indian gold ETFs even posted their first net outflows in over a year during May, as investors locked in gains.

Across the border in China, the world's largest gold consumer, price premiums over the international benchmark have also eased, suggesting that the broader Asian demand engine is running cooler.

Fed Focus: Dot Plot and Warsh's Debut

All eyes are now on the Federal Reserve's two-day policy meeting, which began today. While the CME FedWatch Tool assigns a 97% probability to a rate pause — holding the federal funds rate at 3.50% to 3.75% — the real catalyst lies in the updated dot plot. This quarterly summary of FOMC members' rate expectations through 2028 will carry extra weight because Kevin Warsh is chairing his first meeting. Confirmed by a 54-45 Senate vote on May 22, Warsh has publicly questioned the usefulness of the dot plot, though institutional constraints limit how quickly he can change the format.

If the median projection signals two rate hikes in 2026, the dollar is likely to strengthen, stalling gold's recovery. A neutral or dovish dot plot, however, would remove a key headwind. Market pricing already suggests 70% of participants expect at least one increase by December, so clarity is keenly awaited.

Iran Accord Eases Inflation Pressure

Helping gold in recent days is a geopolitical breakthrough. The United States and Iran have reached a peace agreement that includes reopening the Strait of Hormuz, with a signing ceremony scheduled for June 19 in Switzerland. Oil prices slumped to a two-month low in response, directly relieving inflation fears. US headline inflation hit 4.2% in May — the highest since April 2023 — driven by a 23.5% surge in energy costs linked to the earlier Iran conflict. Core inflation ran at 2.9%. With energy pressure fading, the urgency for the Fed to tighten further diminishes, providing a double tailwind for gold.

Central Banks Keep Buying — with a Catch

Structural demand from official institutions remains a supportive pillar. China has added to its gold reserves for 18 consecutive months. Global central banks purchased a net 244 tonnes in the first quarter, followed by another 17 tonnes in April, according to the World Gold Council. However, the picture is lopsided: Turkey alone sold 60 tonnes in March, leaving reported net buying at just 16 tonnes for Q1. A portion of central bank purchases goes unreported, as there is no mandatory disclosure to the IMF.

Performance and Outlook

Despite the recent uptick, gold still trades roughly 22% below its 52-week high of $5,626.80 and about 5% lower on a monthly basis. Year-on-year, the gain stands at a solid 28%. Barclays analysts view the recent consolidation as a healthy market correction, maintaining a 2026 price target of $4,791 an ounce.

The immediate direction hinges on tomorrow's Fed statement and press conference. If the dot plot confirms a less hawkish path, gold could rally further. But as long as India's import restrictions stifle physical demand, any upswing may struggle to find a firm base near current levels.