Gold’s Demand Paradox: Physical Buying Booms as Macro Headwinds Cap the Rally

Gold struggles as record investor and central bank buying clashes with stubborn US inflation, hawkish Fed, and India's sudden tariff hike; prices fall below key moving average.

Gold is caught in a tug-of-war between two opposing forces. On one side, private investors and central banks are snapping up bullion at a record clip. On the other, stubborn US inflation and a hawkish Federal Reserve are hammering the price, while India’s sudden tariff hike threatens to throttle physical demand from Asia. The result is a market that is defying easy direction.

The World Gold Council’s first-quarter data paint a stark picture of that demand shift. Bar and coin purchases surged 42% year on year to 474 tonnes, while jewelry demand collapsed 23% as consumers balked at elevated prices. Total demand, including over-the-counter transactions, edged up 2% to 1,230 tonnes. Gold is clearly being hoarded as a strategic store of value, not worn as adornment. Central banks added 243 tonnes in the first quarter, led by Kazakhstan, Turkey and Poland, continuing a long-running de-dollarization trend.

Yet the macro climate has turned decidedly hostile. US inflation accelerated to 3.8% in April from 3.3% in March, and the producer price index jumped 6% year on year, powered by surging energy costs. Those numbers have killed any near-term hope of a Fed rate cut. John Williams, president of the New York Fed, reinforced that message on Thursday, saying the current policy stance is well calibrated and he sees no need to ease. The dollar strengthened on his comments, putting additional pressure on non-yielding assets like gold.

The spot price slipped to around $4,613 an ounce on Friday, its lowest in more than a week, and has now fallen 2.6% over the past 30 days. It also breached the key 50-day moving average of $4,740. On Thursday, gold had managed a slight recovery to close at $4,687, but that proved short-lived.

Adding to the headwinds, India — one of the world’s biggest gold buyers — has slammed the door on imports. The government hiked import duties from 6% to 15% and imposed a new cap on duty-free shipments, a move aimed at preserving foreign-exchange reserves as oil prices soar. Brent crude topped $107 a barrel this week, fueled by tensions in the Middle East. During a summit in Beijing, US President Donald Trump secured Chinese President Xi Jinping’s pledge to help secure the Strait of Hormuz, but the risk of further attacks on shipping continues to keep oil markets on edge.

The downdraft is spreading across the precious metals complex. Silver fell 2.4% to $81.42 an ounce, platinum dropped 2.8% to $2,032.90, and palladium lost 1.8% to $1,434.

Technically, gold’s next support zone sits at $4,600, a level that will be tested if the Fed maintains its tough line and Indian demand remains capped. The relative strength index stands at 49.8, a neutral reading, while 30-day volatility has eased to 18.2%. For now, the bullion market is balancing a surge in investment demand against a punishing macro backdrop — and neither side has seized control.