Gold's $4,720 Tightrope: Central Bank Buying vs. ETF Exodus Ahead of CPI Test

Gold holds near $4,720 as central bank demand props up prices while ETF outflows hit $5.5B in 2025; Middle East tensions and Fed rate stance create mixed outlook.

Gold entered the new trading week with a fragile grip on the $4,700 level, hovering near $4,720 per ounce — a price that masks a stark divergence between institutional and state-driven demand. While the yellow metal has rallied 4.15% over the past seven days and stands 8.72% higher year-to-date, the forces underpinning that advance are anything but uniform.

A Tale of Two Demand Streams

Central banks remain the bedrock of the gold market, with purchases for the full year 2026 projected to reach as much as 800 tonnes. Emerging-market central banks, in particular, are using bullion to diversify reserves and reduce dollar dependency. This strategic buying acts as a cushion against any sell-off from other quarters.

The contrast with the investment side could hardly be sharper. The world’s largest gold ETF, the GLD, saw net outflows of roughly $180 million between late April and early May alone. Since the start of 2025, cumulative redemptions from the GLD have hit $5.5 billion — a clear signal that institutional money in the West is stepping back, even as retail demand for bars and coins surges.

Indeed, the World Gold Council reported that total global gold demand reached a record 1,230.9 tonnes in the first quarter of 2026. Bar and coin buying jumped 42% year-on-year to 474 tonnes, driven mainly by Asian investors. The disconnect between physical appetite and ETF flows has left the market in an unusual equilibrium.

Geopolitics: A Double-Edged Sword

The situation in the Middle East continues to shape gold’s trajectory, but not in the straightforward way many might expect. Since the conflict escalated on February 28, Brent crude has surged more than 55%, while gold has actually fallen roughly 10% over the same period. The reason: higher oil prices fuel inflation expectations, and inflation is the traditional enemy of non-yielding bullion.

The de facto closure of the Strait of Hormuz sent energy costs to historic highs, reinforcing the Federal Reserve’s reluctance to cut rates. The Fed has kept its benchmark rate unchanged at 3.50%–3.75%, with the FOMC leaving it untouched for the third consecutive meeting in late April. According to the CME FedWatch Tool, no rate cuts are priced in as the dominant scenario for the remainder of the year. As TD Securities strategists put it, higher energy-driven inflation keeps the opportunity cost of holding gold elevated in the near term.

Yet there are glimmers of diplomatic progress. Reports mid-week suggested Washington had delivered a unilateral memorandum via Pakistani mediators to Tehran, and that Iran is reviewing the proposal. President Trump confirmed that the existing ceasefire remains "in effect." Even so, any peace deal would take time to translate into lower oil prices: damaged infrastructure, Iranian mines, and a backlog of unloaded cargo are all obstacles to rapid normalization.

Macro Support from an Unlikely Corner

Despite the daunting rate backdrop, gold has found some relief from the dollar and bond markets. A weakening greenback and falling US Treasury yields have lowered the opportunity cost of holding bullion, even with the Fed on hold. Friday’s US jobs report for April added 115,000 new positions, while the unemployment rate held steady at 4.3% — a neutral data point that gives the central bank room to wait without triggering a hawkish repricing.

Chart watchers see a market that is neither overheated nor broken. Gold remains below its 50-day moving average of $4,774.90, and the relative strength index at 49.8 signals no extreme momentum. The 13.39% distance from the 52-week high leaves scope for an upside move, but the 22.97% volatility reading warns that sharp swings remain a feature of the current environment.

The Next Catalyst: April CPI

All eyes now turn to May 12, when the US Labor Department releases the consumer price index for April. Chicago Fed President Austan Goolsbee recently cautioned that inflation has accelerated since the conflict began, moving further away from the 2% target rather than closer.

A hotter-than-expected CPI reading would keep the pressure on gold, reinforcing the carry cost for speculators. Conversely, a downside surprise could break the immediate resistance at $4,740 and open the door to a retest of the $4,828 zone. For now, gold’s ability to hold above $4,700 is a testament to the resilience of central-bank buying — but the institutional retreat and the Fed’s immobility are a reminder that this tightrope walk is far from over.