The report noted that gold ended May at USD 4,546 per ounce globally, with prices declining in most major currencies. However, India and Turkey were among the few markets that recorded gains during the month.
“Gold fell 1% in May, finishing the month at US$4,546/oz, and marginally lower in most major currencies. India and Turkey saw monthly gains on policy changes and local currency weakness,” the World Gold Council said in its report titled ‘Gold Market Commentary: Hiking up a volcano’.
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According to the report, gold prices in India rose 4.1 per cent during May, while the year-to-date return in the domestic market stood at 17.6 per cent as of May 29.
The rise in domestic gold prices came amid heightened geopolitical tensions in West Asia and increased volatility in bullion markets. In recent weeks, Prime Minister Narendra Modi had also urged citizens against purchases of gold, underscoring the government’s efforts to maintain market stability during the ongoing regional conflict.
The World Gold Council said that despite growing market expectations of potential interest rate hikes by the US Federal Reserve later this year, demand from major physical gold-consuming markets such as India could continue to provide support to the precious metal.”Demand from China, India and central banks is structurally less sensitive to US rates and could provide support beyond the current lull,” the report said.
The commentary comes at a time when financial markets have shifted from expectations of US interest rate cuts to the possibility of rate hikes amid persistent inflationary pressures.
“Following a somewhat contentious US rate-cutting cycle that began in 2024, the market has pivoted to the strong possibility of rate hikes into year-end and beyond, with a firm economy facing pass-through inflation pressures,” the report noted.
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The World Gold Council argued that future rate hikes may not necessarily be negative for gold prices. It said historical data shows that gold has often performed better than expected following Fed tightening moves.
“Gold has positively surprised on hikes more than 50% of the time. Its median one-month (21-day) return following hikes – adjusted for the long-run average 21-day return of 0.84% – has been positive,” the report said.
At the same time, the council cautioned that gold faces near-term challenges. It said some physical markets have shown signs of weakening demand, and global gold ETF flows remained subdued in May.
“Some physical markets appear to have softened, with discounts in India, South Korea and anecdotal evidence of some selling in Japan,” the report said.
The softer demand trends in India come against the backdrop of Prime Minister Narendra Modi’s appeal last month asking citizens to postpone gold purchases amid supply chain disruptions arising from the West Asia crisis. Addressing the nation, the Prime Minister noted that a significant amount of India’s foreign exchange is spent on gold imports and urged consumers to defer purchases until the situation normalises, as part of broader efforts to reduce pressure on imports during the ongoing geopolitical uncertainty.
The report also flagged energy markets as a key risk for gold in the near term, warning that a sharp rise in oil prices could strengthen the US dollar and weigh on gold prices before longer-term supportive factors emerge.
“The largest near-term risk may come from energy markets,” the World Gold Council said.