A. SREENIVASA REDDY (ABU DHABI)

Gold fell 1% in May, finishing the month at $4,546/oz and marginally lower in most major currencies on continued positive risk sentiment and global gold ETF outflows, the monthly report from the World Gold Council (WGC) said.

However, India and Turkiye saw monthly gains on policy changes and local currency weakness, the report said.

Positive risk sentiment, reflected in equity inflows relative to bond inflows, and a fall in implied volatility acted as a drag on gold prices, alongside gold ETF outflows from Asia and the US.

The WGC said gold ETF outflows from Asia and the US stood at $2.3 billion, or 17.3 tonnes, in May. However, US dollar weakness helped gold at the margin, as did European gold ETF inflows of $0.3 billion, or 1.2 tonnes.

Gold was up 4.1% year to date in dollar terms as of May 29, according to the WGC report. The report said gold had touched a record high of $5,405/oz on January 29, 2026.

The WGC said gold fell in most currencies in May. In dollar terms, gold declined 1.4% during the month, while it fell 1% in euro terms, 0.6% in sterling and 1.5% in Australian dollar terms. In India, however, gold rose 4.1% during the month and was up 17.6% year to date in rupee terms.

Looking ahead, the WGC said the US Federal Reserve may have to hike interest rates later this year as inflation pressures mount, a development that would normally be expected to weigh on gold through higher real yields and a stronger US dollar.

However, the WGC said the relationship between rate hikes and gold has historically been mixed, and that a rate hike could, under certain circumstances, counter-intuitively benefit gold.

The report said gold has positively reacted to rate hikes more than 50% of the time, with its median one-month return following hikes positive after adjusting for the long-run average 21-day return.

“What matters more than the policy rate itself is how markets interpret the implications of tightening for growth, inflation credibility, financial stability and the US dollar,” the WGC said.

According to the WGC, a rate hike in the current environment may be viewed differently from previous tightening cycles. In earlier cycles, hikes often signalled policy credibility and economic normalisation. This time, however, the WGC said hikes may increasingly signal persistent inflation pressure, fiscal stress, and policy error risk amid divergent Federal Reserve views and political pressure.

“Rather than reinforcing confidence, markets may interpret rate hikes as evidence of underlying fragility,” the WGC said.

Demand from China, India and central banks is structurally less sensitive to US rates and could also provide support to the gold price, the WGC said.

The WGC, however, said its argument was not that a rate hike is inherently bullish for gold. Historically, hikes have tended to be negative for gold if they strengthen the US dollar, lift real yields and boost sentiment. If a hiking cycle materially improves the market’s assessment of Fed credibility, gold could face additional pressure, the report said.

The report also flagged several near-term headwinds. Some physical markets appear to have softened, with discounts in India and South Korea and anecdotal evidence of some selling in Japan. Global gold ETF flows were lacklustre in May, while the possibility of sporadic official-sector swaps or sales remains as the Strait of Hormuz standoff continues.

“Technically, gold remains vulnerable – perched on its 200-day moving average, in what looks like a declining channel,” the WGC said.

The WGC said the largest near-term risk may come from energy markets, with oil dominating headlines and inflation expectations, as well as driving bond yields.

A sharp rise in energy prices driven by inventory depletion could initially push yields higher, strengthen the dollar and extend gold’s current weakness before the longer-term implications become clear, the report said.

The report said oil-market developments linked to the Strait of Hormuz could therefore complicate the outlook for gold. While geopolitical tensions can normally support safe-haven demand, the WGC said an energy shock could first work through higher inflation expectations, bond yields and the dollar, creating a near-term drag on gold.