Gold’s $4,697 Stalemate: Rate Hike Odds Jump While Physical Demand Hits a Record $193 Billion

Gold wavers between Fed rate hike fears driving prices below $4,700 and record central bank + retail demand that limits downside, with geopolitical risks in focus.

Gold is locked in a battle between two powerful forces. On one side, red-hot US inflation data is reviving talk of a Federal Reserve rate increase, sending the yellow metal below $4,700 an ounce. On the other, central banks and retail investors are hoarding bullion at an unprecedented pace, putting a floor under prices that keeps the correction from spiraling into a full-blown rout.

The trigger for the latest selloff came from the producer side. US wholesale prices surged 1.4% in April on a seasonally adjusted basis, more than double the 0.5% expected and the biggest monthly jump since March 2022. The annual producer price index hit 6%, its highest since December 2022. That followed a consumer price index that climbed to 3.8% in April, with core inflation at 2.8% — both well above the Fed’s target.

The market’s reaction was swift. The probability of a rate hike — a scenario that seemed fringe just weeks ago — now stands at roughly 39%, according to CME Group data. The federal funds rate currently sits in a range of 3.5% to 3.75%, and nearly 96% of traders see no change at the June meeting. A growing minority, however, expects tighter policy before year-end. Higher interest rates raise the opportunity cost of holding gold, which offers no yield, and the spot price fell to $4,697.10 at Wednesday’s close, down 3.44% on the month but still up 8.18% year-to-date.

Compounding the pressure from rates is a fresh geopolitical complication. US President Donald Trump and Chinese President Xi Jinping are meeting in Peking on May 14 and 15, a summit postponed from earlier because of the Iran war. The agenda includes tariffs, rare earths, artificial intelligence, Taiwan, and the Middle East conflict. The war itself has been a major cost driver, knocking out a key portion of China’s oil supply and pushing crude above $120 a barrel, which feeds directly into inflation. Any failure in the talks could reignite safe-haven demand for gold, but for now, the uncertainty is adding to the headwinds.

Meanwhile, India has thrown its own wrench into the market. The government raised import duties on gold and silver from 6% to 15%, a steep hike aimed at shrinking the trade deficit and propping up the rupee. That move is expected to dampen local demand, which has been a significant pillar of global consumption.

Offsetting those pressures, however, is a physical market that is firing on all cylinders. The World Gold Council reports that global gold demand reached 1,231 tonnes in the first quarter of 2026, with the value of that demand soaring to a record $193 billion. Central banks alone purchased an estimated net 244 tonnes in Q1, a volume above both the prior quarter and the five-year average. The market for bars and coins surged 42% worldwide, with China — the key growth engine — seeing a 67% jump to 207 tonnes.

The contrast with the paper market is stark. While the world’s largest gold ETF recorded modest inflows of about five tonnes in May, the year-to-date picture is dominated by heavy outflows, with billions of dollars fleeing the fund since January. European investors, in particular, have been using bullion as a political hedge, but institutional money remains skittish.

On the supply side, there is little relief in sight. Mine production is expected to grow only moderately, while potential diesel shortages in parts of Asia and Oceania add further risk.

Technically, gold is stuck in a neutral zone. The 50-day moving average sits at $4,749.71, offering a near-term ceiling, with a harder resistance wall at $4,830. As long as the metal holds above its recent lows, the broader uptrend remains intact. The next catalyst for a breakout — or a breakdown — will come from the outcome of the Trump-Xi talks. For now, the market is waiting, caught between a rate-hawkish Fed and a physical market that refuses to quit.