Gold Under Twin Pressures: Hawkish Fed Transition and Oil Spike Deepen 4.7% Monthly Rout

Gold drops 4.7% in May as oil-driven inflation fears and a hawkish Fed under Kevin Warsh outweigh waning geopolitical risks. India's import duty hike adds pressure, with key $4,500 support in focus.

Gold has suffered its worst month since last autumn, with the precious metal tumbling 4.7% as two distinct headwinds converge. On Friday, spot bullion slid 0.65% to $4,510.50 an ounce, pushing the weekly decline to nearly 1%. The losses extend a correction that has now erased 17% from the January high, leaving the market nursing a 3.4% gap below its 50-day moving average of $4,669.

The selling pressure stems from a rare one-two punch. A surge in crude oil prices — underpinned by fading hopes for a quick US-Iran breakthrough — has revived inflation fears, strengthening the case for the Federal Reserve to keep borrowing costs elevated. At the same time, diplomatic signals pointing toward a détente between Washington and Tehran have stripped away some of the geopolitical risk premium that had previously supported safe-haven assets. The result is a market caught between competing narratives: oil-driven inflation expectations on one side and diminishing fears of conflict on the other.

The policy backdrop has shifted sharply since Kevin Warsh took the helm of the Federal Reserve on May 22, replacing Jerome Powell. Warsh’s first public comments hinted at a tightening of the central bank’s balance sheet and closer coordination with the White House, even as the administration pushes for lower rates. Markets have responded accordingly: the CME FedWatch tool now assigns a 58% probability to at least one 25-basis-point rate hike before December. Fed governor Christopher Waller reinforced the hawkish stance, arguing against any dovish language in the Fed’s communications, though he stopped short of endorsing an immediate increase.

Economic data released last week underscored the challenge. The University of Michigan’s consumer sentiment index for May was revised down to a record low of 44.8 from a preliminary reading of 48.2. Meanwhile, consumers’ inflation expectations for the coming year rose to 4.8%, and the five-year outlook climbed to 3.9% — levels that historically have made the Fed wary. The broader US inflation rate stands at 3.8%, compounding the central bank’s dilemma.

On the demand side, India — one of the world’s largest gold consumers — delivered another blow. The government raised the import duty on gold from 6% to 15%, a move that the World Gold Council estimates will cut 50 to 60 tonnes of demand this year, roughly 10% of the Indian market. Spot prices in Delhi dropped 600 rupees to 1.64 lakh per 10 grams as buyers balked. On the supply front, miners remain active: 1911 Gold Corp is advancing the True North Mine in Manitoba toward test mining in 2026, while NevGold is accelerating development of the Limo Butte project in Nevada, which also hosts antimony resources.

Chart watchers are keeping a close eye on the $4,500 level, which has emerged as a key psychological support. The RSI stands at a neutral 49.8, offering little directional bias. With the 50-day average sitting near $4,670, a sustained recovery would require gold to reclaim that threshold quickly to avoid a deeper breakdown. All eyes now turn to Warsh: any concrete steps toward balance-sheet reduction in the coming days could intensify the sell-off, while a reversal in Iran talks might revive safe-haven flows and rekindle buying interest.