Record Chinese Gold Buying Streak Meets Headwinds from New Fed Chief and Sticky US Inflation

Spot gold drops 3.5% to two-month low as Fed hawkish stance and rising US inflation extinguish rate-cut hopes, even as China's central bank adds 8 tonnes to reserves in April.

The world’s two largest gold stories are pulling in opposite directions. China’s central bank snapped up bullion for the 18th consecutive month in April, yet the metal closed Friday near a two-month low as a hawkish shift at the Federal Reserve and persistent US inflation crushed hopes of near-term rate cuts. The disconnect between booming physical demand and deteriorating financial-market sentiment has rarely been this stark.

Spot gold finished the week at $4,555.80 an ounce, a drop of roughly 3.5 percent from the prior Friday, while other benchmarks showed the metal at $4,543.60 — a slide of nearly 4 percent. Either way, it marks a sharp retreat from January’s peak of $5,450. The sell-off accelerated after data showed producer and consumer prices rising faster than expected in April, extinguishing expectations that the Fed would begin easing as soon as June. According to the CME Group, more than 97 percent of traders now anticipate no change in rates at next month’s meeting.

The arrival of a new Fed chair has added to the gloom. Kevin Warsh formally succeeded Jerome Powell on Thursday, and markets swiftly recalibrated their rate outlook. A stronger dollar — the greenback hit its highest level since early April — further undermined gold by making it more expensive for overseas buyers. At the same time, the yield on 10-year US Treasuries pushed above 4.55 percent, luring capital away from non-yielding assets.

None of this has deterred the People’s Bank of China, which added another 8 tonnes to its reserves in April, lifting total holdings to 2,322 tonnes. That 18-month buying spree is part of a broader Chinese appetite: net imports of gold reached 316 tonnes in the first quarter, a huge year-on-year increase. Globally, gold demand hit a record in the opening three months of the year, driven by central-bank purchases and retail buying. The physical market remains robust — it is the financial market that has turned hostile.

Geopolitical tensions have provided little support. The Strait of Hormuz remains disrupted, threatening global trade and energy flows, while rising oil prices are a double-edged sword: they fan inflation fears and reinforce expectations of tighter US monetary policy, outweighing any safe-haven bid for gold. Analysts note that a sustained recovery in the metal will likely require a meaningful decline in US bond yields.

Technically, the short-term picture has soured. Gold has decisively broken below its 50-day moving average of $4,728, and the immediate focus is now on the $4,500 support level. A break below that could open the door to further losses. On the upside, buyers need to reclaim the $4,660 area initially, with tougher resistance at $4,762. The longer-term trend remains positive — gold is still up roughly 5 percent year-to-date — but the path of least resistance in the near term is lower.

Investors will now turn to the Fed’s minutes from its latest meeting, due on May 20, for clues on how deep the hawkish sentiment runs among policymakers. Two days later, the University of Michigan’s inflation expectations data will offer a fresh read on consumer price pressures. For now, gold’s fate rests on whether US interest rates — and the dollar — finally begin to ease.