Gold Posts Worst Week Since March as Inflation Surprise Upends Rate Path and Fuels Dollar Rally

Gold suffers steep weekly drop as hot inflation and hawkish Fed shift lift yields and dollar, but record central bank buying and Asian demand provide underlying support.

Record central bank buying and surging Asian retail demand have done little to shield gold from a brutal selloff. The metal suffered one of its steepest weekly declines in months, dropping around 4 percent as hotter-than-expected US inflation data and a hawkish shift at the Federal Reserve rewrote the interest-rate outlook. The LBMA reference price closed Friday in a range of $4,530 to $4,564 an ounce, a far cry from the January record near $5,589.

The trigger came in two waves. On Thursday gold staged a brief recovery to $4,703, up 0.32 percent for the day. That respite evaporated Friday morning when the spot price plunged $155 to a low of $4,548. Underlying the rout: US consumer prices rose 3.8 percent year-on-year in April, while producer prices posted their largest monthly gain since 2022. The 10-year Treasury yield jumped to 4.55 percent, the highest in a year, directly competing with zero-yield bullion.

Compounding the pressure is a leadership change at the Federal Reserve. Kevin Warsh, a known hawk, takes over after Jerome Powell’s term ends. Futures markets have all but priced out rate cuts for 2026; instead, some 30 percent of traders now see a rate hike by December. “Rate increases are being priced in, not cuts,” said Collin Martin of the Schwab Center for Financial Research. “It will be very tough for Warsh to justify lower rates when inflation is accelerating again.”

The dollar has ridden the same wave, strengthening as the market reprices monetary policy. A rising greenback historically weighs on gold priced in other currencies. Geopolitical factors have added fuel: the escalating conflict in the Middle East and the blockade of the Strait of Hormuz have sent oil prices climbing, further feeding inflation expectations and bolstering the dollar.

Yet the physical market tells a different story. Central banks added a net 244 tonnes of gold in the first quarter, the highest quarterly tally since the end of 2024. Total global demand reached 1,231 tonnes, worth a record $193 billion. Bar and coin purchases hit 474 tonnes, driven heavily by Asian buyers. Poland alone bought 31 tonnes, inching toward its strategic target of 700 tonnes, while China’s central bank increased its reserves by 7 tonnes.

The tug-of-war between short-term rate pressure and structural central-bank buying has left gold in a technical no-man’s-land. From the January all-time high, the metal has shed 18.3 percent, touching a low of $4,483 during the week — the weakest level since March. Chartists are watching the $4,483 to $4,530 zone as critical near-term support; a break below could open the door to $4,300. On the upside, $4,700 to $4,750 now acts as solid resistance.

The next catalyst arrives on May 21, when US purchasing managers’ index data is due. That release could determine whether gold stabilizes within its current support zone or extends its slide. A spike in geopolitical tensions, particularly in the Middle East, remains the wild card that could quickly reintroduce a safety premium. For now, though, the inflation shock and the new Fed calculus dominate the narrative.