Gold Under Siege: A New Fed Chief and India's Surprise Tariff Compound the Inflation Pain

Gold slumps 16% from highs as US inflation, rate hike fears, strong dollar, and India's import duty hike outweigh surging central bank and retail demand.

The gold market is grappling with a rare divergence. Physical demand is surging — coin and bar purchases jumped 42% in the first quarter, and central banks hoarded a record 1,231 tonnes — yet the spot price keeps falling. On Friday, bullion closed at $4,554 an ounce, shedding 3.5% over the week and sitting a full 16% below January’s all-time high of $5,450. The year-to-date gain has been trimmed to just under 5%.

The culprit is a toxic macro backdrop. US inflation printed well above expectations in April, with the consumer price index hitting 3.8% and the producer price index surging 6.0% — the fastest annual gain in factory-gate prices in four years. That has all but extinguished hopes of rate cuts this year. A handful of traders are now betting on a hike as soon as December, while the CME FedWatch tool pegs the probability of a rate increase by end-2026 at nearly 50%.

Kevin Warsh formally succeeded Jerome Powell as Federal Reserve chair on Thursday, and he has already signaled that borrowing costs will stay elevated. The dollar consequently rallied to its highest level since early April, and the yield on 10-year US Treasuries hovered around 4.6%. A stronger greenback makes gold more expensive for overseas buyers, while rising yields undermine the appeal of a non-yielding asset.

India dealt a separate blow to the physical market. The government unexpectedly raised import duties on gold from 6% to 15%, triggering record discounts in local trading. India is one of the world’s largest gold consumers, and although Chinese demand remains stable, it cannot offset the Indian shortfall. Geopolitical tensions — including the failure of the Trump-Xi summit to resolve the Strait of Hormus blockade — have so far failed to provide any safe-haven support.

Yet the underlying appetite for gold is unmistakable. Central banks are buying at breakneck speed; Poland’s National Bank was a prominent buyer in the first quarter. Private investors also returned in force, pushing global bar-and-coin demand up 42% year-on-year. Even exchange-traded funds, which have bled assets for months, saw a flicker of renewed interest. The world’s largest gold ETF attracted roughly $180 million in inflows over a few days, lifting its holdings by more than five tonnes. That still leaves the fund’s year-to-date balance deeply in the red.

Technically, gold is testing critical support at $4,550. A sustained break below that level could open the door to $4,500. The week ahead offers several catalysts: G7 finance ministers gather in Paris on Monday, the Fed publishes the minutes from its April meeting on Wednesday, and May 21 brings manufacturing PMI data that will shape the near-term outlook.