Gold prices remained under corrective pressure and pulled back toward the $4,300/oz area, marking a decline of nearly 9% over the past month.
This movement suggests that gold’s bullish momentum has weakened significantly after the strong rally seen earlier.
However, from a longer-term perspective, the current price remains well above the level seen during the same period last year, indicating that the broader uptrend has not been broken. Instead, the market appears to be entering a phase of correction and repricing of expectations.
The main pressure on gold currently comes from the recovery in the U.S. dollar (DXY around 99.7–99.8) and U.S. Treasury yields (around 4.5%–4.6%) following stronger-than-expected U.S. labour market data.
The labour market remains resilient, with nonfarm payrolls increasing by 172,000 jobs and the S&P Global flash manufacturing PMI rising to 55.3 in May. Meanwhile, inflation remains sticky, with April CPI rising 0.6% month-on-month and one-year consumer inflation expectations staying at 3.5%. These factors have led investors to scale back expectations for an early Fed policy easing.
The Fed is currently keeping interest rates in the 3.50%–3.75% range, and the fact that the economy has not weakened enough gives the central bank more room to keep rates higher for longer. This increases the opportunity cost of holding gold, thereby weighing on the precious metal in the short term.
In addition to the rate factor, gold ETF flows have also slowed noticeably. Global gold ETFs recorded around $2 billion in net outflows in May, reflecting more cautious investor sentiment after gold’s sharp rally. Nevertheless, it is worth noting that year-to-date gold ETF flows remain positive at around $17 billion, suggesting that the broader trend has not turned completely negative. In other words, buying interest has not disappeared, but it has weakened and become more selective.
From a longer-term perspective, central bank gold demand remains an important source of support. Continued reserve diversification and higher gold allocations among central banks show that the fundamental support story for gold remains intact. However, in the short term, this support is not yet strong enough to fully offset the pressure from the U.S. dollar, Treasury yields, and expectations that the Fed will maintain a tighter policy stance for longer.
Overall, gold still leans toward a corrective scenario in the short term as upside momentum weakens, ETF flows slow, and pressure from the U.S. dollar, Treasury yields, and higher-for-longer Fed expectations remains in place. If these pressures continue to intensify, especially if U.S. inflation data comes in hotter than expected or if markets further reduce expectations for an early Fed rate cut, gold may need to move lower to find a new equilibrium. In that scenario, the $4,000/oz area could become an important balancing zone, where the market reassesses gold’s attractiveness after its strong previous rally.
However, this does not mean that gold’s long-term trend has reversed. Compared with the same period last year, gold remains at an elevated level, while central bank demand and the ongoing trend of reserve diversification continue to provide fundamental support. Therefore, over the longer term, gold will likely need to go through a period of correction and consolidation to absorb the pressure from high interest rates before establishing a more stable price base and recovering once macro conditions become more favourable.
Leave a Comment