Rising inflation may push real rates lower, setting the stage for gold’s next rally
(Kitco News) – The gold market continues to struggle as prices remain firmly below their 200-day moving average. The selling pressure has been driven by rising inflation fears, but one analyst says that this threat could also be gold’s greatest long-term strength.Gold prices broke through critical support Friday after the Bureau of Labor Statistics announced that 172,000 jobs were created in May, significantly more than expected. Resilient strength in the labor market is prompting markets to price in a potential rate hike before the end of the year.According to the CME FedWatch Tool, markets see a nearly 50/50 chance of a rate hike as early as October. The hawkish tilt represents a significant shift from only a month ago, when markets were still pricing in a rate cut.Although gold has sold off on expectations that higher interest rates will raise the opportunity cost of holding a non-yielding asset, Nitesh Shah, Head of Commodities and Macroeconomic Research at WisdomTree, said that markets may be getting ahead of themselves.He explained that he sees a real possibility that inflation pressures could outpace the Federal Reserve’s ability to respond, pushing real interest rates deeper into negative territory and reinforcing investor demand for hard monetary assets.Although markets continue to debate the policy direction of newly appointed Federal Reserve Chair Kevin Warsh, Shah said the more important story for gold is not where nominal interest rates move, but what happens to inflation.”There’s a lot of potential for real rates to go down, especially if the Fed is holding still and inflation is rising,” Shah said.Warsh has previously expressed support for lower interest rates while simultaneously shrinking the Fed’s balance sheet. However, Shah argued that elevated inflation leaves policymakers with little room to aggressively cut rates without risking their credibility.”Right now, the data doesn’t really allow for rate cuts because inflation is rising,” he said. “Cutting rates in this environment would be disastrous from a credibility standpoint.”Even if the Fed keeps nominal rates unchanged, Shah noted that accelerating inflation would effectively reduce real interest rates — one of the most important factors impacting gold prices.Inflation Risks Remain UnderestimatedAccording to Shah, investors may still be underestimating the potential for inflation surprises in the months ahead.One area of concern is energy markets. He noted that global oil inventories have been steadily declining, creating the potential for a nonlinear move higher in prices if supplies become increasingly constrained.”We started this period with huge inventories of oil, and that inventory is wearing down rapidly,” he said. “The more you pull down inventories, the greater the marginal impact on oil prices.”Higher energy prices could continue to filter through broader inflation measures at a time when inflation is already moving above the Federal Reserve’s target.While technological advances such as artificial intelligence could eventually improve productivity and help contain service-sector inflation, Shah argued that the outlook for goods inflation remains more problematic.”I think we’re stuck with high prices,” he said.He added that this scenario would continue to erode real yields, reducing the opportunity cost of holding non-yielding assets such as gold.Beyond inflation, Shah said the growing possibility of slower economic growth could create an additional catalyst for gold.Any resulting economic slowdown would likely reinforce gold’s role as a defensive asset.”If you do start seeing economic deceleration, that’s another reason for gold prices to rally,” Shah said. “Gold tends to do well in recessionary scenarios. It is a very strong defensive asset.”Shah also pointed to growing concerns surrounding government debt sustainability as another structural pillar supporting gold prices.Interest payments on U.S. government debt are approaching levels comparable to military spending, raising questions about the long-term sustainability of fiscal policy.”Gold prices are as elevated as they are right now because markets are worried about the sustainability of debt,” he said.Although Warsh has indicated a desire to shrink the Federal Reserve’s balance sheet and reduce the government’s dependence on monetary support, Shah remains skeptical that meaningful balance sheet reduction will be politically or economically achievable.Slower economic growth and rising fiscal pressures could ultimately force policymakers back toward easier monetary policy, further strengthening gold’s investment case.With inflation risks rising, real rates facing downward pressure, recession concerns mounting, and central-bank buying remaining robust, Shah believes gold’s recent correction may ultimately prove temporary.”I think we’re sitting on a bargain in gold right now,” he said.Shah added that recovering the roughly $1,000 decline from recent highs within the next year appears achievable if inflation continues to surprise to the upside and investors increasingly seek protection in hard monetary assets.
China increases gold reserves by 9.95 tonnes in May for 19th straight month of purchases
(Kitco News) – The People’s Bank of China (PBoC) increased its gold reserves by nearly 10 tonnes last month, its 19th consecutive month of bullion purchases, according to the latest government data.The State Administration of Foreign Exchange (SAFE) announced on Sunday that China’s official gold reserves rose by 320,000 troy ounces or 9.95 tonnes in May to a total of 74.96 million troy ounces or 2331.52 tonnes.China’s total foreign exchange reserves rose to $3.4422 trillion at the end of May, increasing by $31.7 billion or 0.93% from April. This is the highest level for China’s FX reserves since November 2015, and they have remained above $3.3 trillion for the past 10 months.SAFE attributed the growth of reserves to a number of factors, including a firmer U.S. Dollar Index and rising global asset prices, adding that China’s sound economic momentum has underpinned the stability of its reserves.Experts have noted that China’s rising foreign exchange reserves are closely linked to the country’s export performance. China’s total foreign trade in the first four months of 2026 rose to $2.39 trillion, an increase of 14.9% year-on-year, with exports rising by 11.3% percent to $1.37 trillion and imports rising 20% percent to $1.01 trillion, according to the latest data from China’s General Administration of Customs.Meanwhile, China’s domestic gold market has shown definite signs of cooling in recent weeks. “Amid heightened market uncertainty, gold ETFs have seen an overall reduction in assets under management, with several funds experiencing significant net outflows,” noted a report from Gelonghui Finance. “As of June 3, 14 gold ETFs recorded combined net outflows exceeding RMB 10 billion [$1.48 billion] over the past month.”“The previously widely accepted investment view of ‘buying on dips amid falling gold prices’ has started to face divergence under current volatile market conditions,” they added.Chinese gold equities listed in Hong Kong also declined sharply in a move characterized as ‘unusual.’“Hong Kong-listed gold stocks broadly declined, with China National Gold International Resources and Jihai Gold down 3.6%, Zijin Mining falling 3.5%, Shandong Gold and Zhaojin Mining dropping nearly 3%, Zijin Gold International declining 2.4%, and Chifeng Gold, Lingbao Gold, China Silver Group, Zhufeng Gold, and Tongguan Gold also following lower,” the report noted.China’s physical gold market has also cooled substantially from the white-hot demand seen at the start of the year when international and domestic gold prices were setting new all-time records on a near-daily basis.The latest numbers from the Shanghai Gold Exchange (SGE) showed that gold withdrawals in May totaled only 63.5 tonnes – the lowest level since February of 2020 during the first wave of the COVID-19 outbreak, and around half of what they were in March of this year.Industry professionals told Gelonghui Finance that “while short-term gold price volatility may persist, the core rationale supporting gold’s strategic allocation value remains intact over the medium to long term.”
Wall Street brimming with bears after gold’s breakdown, Main Street pessimism persists as inflation data takes center stage
(Kitco News) – Gold prices saw another volatile week as persistent Middle East uncertainty offered only limited safe-haven support, while stronger U.S. labor data, rising Treasury yields, and renewed Fed rate-hike concerns drove the yellow metal sharply lower on Friday.Spot gold kicked off the week trading at $4,539.42 per ounce on Sunday evening, and the yellow metal briefly pushed higher as traders reacted to fresh uncertainty around Iran and the Strait of Hormuz. But the rally quickly stalled after reports that Tehran was stepping back from talks, sending oil prices, Treasury yields, and the U.S. dollar higher, with gold ultimately setting its weekly high of $4,545.55 per ounce on Monday before sellers took control.Gold prices attempted to stabilize Tuesday, helped by cautious optimism around a partial Israel-Hezbollah ceasefire, but the recovery faded below $4,550 after April JOLTS data showed job openings jumping to 7.6 million, reinforcing expectations that the Fed would have little reason to ease policy. The pressure continued Wednesday as ADP pointed to steady labor-market conditions, pushing policy-sensitive yields higher and keeping gold on the defensive.The metal found some relief Thursday as Treasury yields and the dollar eased on renewed hopes for a broader regional de-escalation and progress toward reopening the Strait of Hormuz. But Friday’s stronger-than-expected May jobs report reversed the move, with U.S. payrolls rising by 172,000 and rate-hike fears returning in force. Gold broke decisively lower in the wake of the payrolls data, and set its weekly low at $4,311.93 per ounce on Friday afternoon as the selloff accelerated, with the yellow metal seeing only a slight bump off the low heading into the close.The latest Kitco News Weekly Gold Survey showed Wall Street overwhelmingly bearish on gold’s near-term prospects, while Main Street grew more pessimistic after gold’s week of weakness.“Gold looks heavy and the stronger-than-expected US jobs growth and the backing up in yields pushed the yellow metal back below the 200-day moving average (~$4428),” noted Marc Chandler, managing director at Bannockburn Global Forex. “It has not settled below it since Nov 2023. May’s low near $4367 is the next obvious technical level of interest.”“Unchanged,” said Adrian Day, president of Adrian Day Asset Management. “Gold will stay in a trading range until the Iran hostilities end. The conflict boosts the dollar and, by causing the oil price to be high, raises concerns about higher interest rates, both bad for gold.”“Up,” said Rich Checkan, president and COO of Asset Strategies International. “The sell-off in gold is overdone. The real return on investment for holding term deposits at a bank is negative… with interest rates at 3.5% and inflation at 3.8%… and climbing. We are a long way away from the ‘higher’ interest rates necessary to make owning gold less attractive.”Eugenia Mykuliak, Founder & Executive Director of B2PRIME Group, said gold prices are at one of their most interesting points over the past year.“This is the second time the price has tested the 200-day average, and I think it can be the level that often determines the long-term trend,” she said. “However, at first glance, the background can look alarming. The thing is, in May, global gold ETFs lost about $2 billion, and investors continue to take profits and partially withdraw into US bonds.”There is a nuance to the picture, however. “As long as speculative capital is coming out of gold, central banks continue to buy it,” Mykuliak noted. “In April, the world’s central banks returned to net purchases, adding 17 tons to reserves after the March pause. Moreover, gold continues to strengthen its position as a reserve asset and gradually takes away the share of US government bonds in international reserves (especially against investors’ turn to ultra-short bonds).”Mykuliak said she doesn’t believe gold’s current weakness as the beginning of a bear market. “Instead, I would say that we are witnessing a so-called clash: short-term sales by investors vs. long-term strategic demand from states,” she said. “So, if the 200-day average level holds, gold may well receive an impulse for a new wave of growth. Otherwise, the correction will be delayed, but I believe the fundamental history of gold remains strong, as in any case, it’s an undeniable safe-haven.”Kevin Grady, president of Phoenix Futures and Options, told Kitco News that reports of the economy’s death have been greatly exaggerated, and gold has further to fall before it bounces.“The numbers are good, and the revisions were up,” Grady said. “Everybody keeps throwing bad stuff at this, ‘Oh, this is gonna be bad, and that’s gonna be bad, and the economy is not doing well.’“It just doesn’t appear to me to be the case, he said. “The economy looks like it’s in better shape.”Grady said there’s been a lot of speculation about the rate path, but Friday’s nonfarm payrolls report lowers the temperature on that talk. “Raising rates, lowering rates, Warsh, how is he going to deal with this? I don’t think that’s an issue for right now,” he said. “I think there’s still some data out there that he has to look at.”As for gold’s selloff in the wake of the payrolls report, Grady said it’s important not to overreact to the price action in either direction when the market is as thin as it is, but the fresh lows could bring an important segment of buyers back into the market.“Gold stalled up there, and there were no fresh buyers coming in,” he said. “The volume has been anemic. Open interest is very low for gold right now. A lot of people just aren’t buying. I think what’s happening now is that gold is up at these levels, and now they’re saying, ‘Who’s the next buyer?’ The reason gold rallied [at the start of the multi-year rally] was because of the central bank buying. I think we have to look and see what that level is, where the central banks are going to come in and buy, because they weren’t doing it up at those higher levels, and that’s why the market’s testing those lows.”But after Friday morning’s definitive break through the 200-day moving average, Grady believes gold will likely return to test the March 23 low of $4,128 before things turn around.“There’s no reason we couldn’t test that level,” he said. “But the lower volumes and lower open interest are a double-edged sword. Slowly, gold has been eroding a tremendous amount of open interest. And with the market higher up like that, the assumption would be that there’s a lot of longs in the market. The active contract is August, and the August contract is 263,000 contracts, which is very low.”Grady said the market is actually thin on both sides, and he doesn’t see any more conviction in Friday’s selloff than he has in the recent moves higher.“I don’t think that you’re seeing a massive amount of longs,” Grady added. “I think you’re seeing some speculative shorting here. The algos read the data and then they’re pushing this thing lower, and I just don’t think there’s a lot of people right now that are stepping in their way. I don’t think this is a mass liquidation. We’ll see on Monday, but I don’t think you’re seeing a mass liquidation of gold.”He said the larger truth is that people have backed away from the market since March. “The market was up there, and then it stalled,” he said. “Whether you’re talking about the upside or downside in any market, when the market stalls like that, it’s waiting for the next buyer to come in. Who’s the next buyer? No one’s coming in. Open interest is diminishing. A lot of the players are starting to back away.”“I think it was inevitable for us to test these lows.”This week, 15 analysts participated in the Kitco News Gold Survey, with Wall Street flipping from three-quarters bullish to three-quarters bearish after gold’s failure to maintain critical support. Only two experts, or 13%, expected to see gold prices gain ground during the week ahead, while 11 others, or 74% of the total, predicted a price decline. The remaining two analysts, representing 13%, expected consolidation during the week ahead.Meanwhile, 49 votes were cast in Kitco’s online poll, with Main Street investors growing more pessimistic after gold’s latest slide. 23 retail traders, or 47%, looked for gold prices to rise next week, while another 18, or 37%, predicted the yellow metal would lose ground. The remaining eight investors, representing 16% of the total, expected gold prices to trend sideways in the coming week.After a week focused squarely on employment, next week will feature several key inflation metrics that could help market participants firm up their increasingly hawkish interest rate expectations.The economic calendar kicks off on Tuesday morning with the release of Existing Home Sales for May. On Wednesday, traders will be watching the U.S. Consumer Price Index, along with the Bank of Canada’s monetary policy decision, with markets priced in for a hold.Then Thursday morning brings the ECB’s monetary policy decision, with traders seeing good odds of a hike this time, followed by the U.S. Producer Price Index and weekly jobless claims.The week’s economic data wraps up Friday morning with the University of Michigan’s Preliminary Consumer Sentiment Survey for June.John Weyer, director of the commercial hedge division at Walsh Trading, told Kitco News that the higher-than-expected payrolls data, combined with the upward revisions to prior months, constitute a positive trend for U.S. employment.“The one concern on the job numbers, 55,000 were local government hires, he noted. “That’s a pretty large number, and you would think that’s one that won’t be sustained. It’s an interesting wrinkle, but with the revisions, all of a sudden, you’re getting an upward trend here.”“The one thing you might have a concern about, also pointed out by others, was the idea that those who sustained unemployment is growing, those who’ve been off work six months longer is continuing to grow. That’ll give you some concern. But overall, anytime you get something better than expected, it’s always good.”Weyer said the reaction in the gold and silver market has more to do with the surprise than anything else, and he thinks Friday’s selloff was somewhat overdone.“When you see gold down $130, if you’ve been around as long as I have, you think ‘Holy cow! Is the world ending?’ That being said, you can see this making sense,” he said. “There’s an issue going on here with Iran and the Strait of Hormuz. But as long as we don’t have active bombings or attacks, it is being dealt with, it’s a known entity, as opposed to an unknown. Markets can handle good news, they can handle bad news, what they don’t like is uncertainty. We got a little bit of certainty there with the current status [of the ceasefire]. Now if that changes, I would expect the metals to get a lot of this back. I won’t say it’s not a concern, but we’ve learned how to deal with it.”“Now you’re getting some positive sustained economic data,” he added. “It gives you a reason to say, ‘Hey, metals are not the safe haven play.’”Weyer said that interest rate expectations adjusted swiftly in the wake of the payrolls report, and whatever easing bias remained in the market has dissipated.“What I learned being in the trade business, is that I’ll go where the people have money on the line,” he said. “Right now [Treasury futures] are down across the board, which means you’re definitely not expecting any cuts anytime soon. You wonder how far out they’ll go, or how close they’ll come, where they say, ‘We have to consider raising rates is on the table.’ But definitely the idea that cut… It’s hard justifying any rate cut right now. I think it’s just off the table for a while.”As for the price action, Weyer views this as a near-term move, and he expects the market will get much of it back in short order.“There’s a whole lot of longs here, meaning people are buying gold because they were too late,” he said. “You’re going to see it hold for a bit here, but you’re really going to need, I think, more sustained data like we got today” for a sustained trend lower.Alex Kuptsikevich, senior market analyst at FxPro, expects gold prices to decline once again next week.“Gold has once again tested the 200-day moving average, from which the price rebounded last week and in March,” he wrote. “However, the increasingly frequent tests of this long-standing support level signal a further shift in global sentiment towards gold. Fundamentally, gold broke through in January and March, confirming a trend reversal, but we are now merely seeing a shift in strategy to ‘sell the growth.’”“Technically, at the time of writing ($4,380), gold has slipped below the 200-day moving average and is testing last week’s lows and the March support zone, having returned to October’s peak,” Kuptsikevich noted. “We anticipate a further decline in price, with our next area of interest near $4,250, where the 50-week moving average lies. There could be another local shake-out there, comparable to what we have seen over the past two weeks.”Michael Moor, founder of Moor Analytics, expects to see gold prices lose further ground next week.“LOWER unless we take out lower timeframe formation mentioned below,” he wrote. “In a Higher time frame: I cautioned on 8/16/18 the break above $1,183.0 warned of renewed strength. We have seen $4,443.1. This is ON HOLD. We held exhaustion at 56192 with a 56268 high and rolled over $1,526.8. This is ON HOLD. On a medium timeframe basis: The trade below 52554 (+15 tics per/hour) projects this down $220 minimum, $740 (+) maximum—we attained $1,155.4. The trade back below 52036 (+13 per/hour) has brought in $1,103.6 of pressure. The trade back below 51606 (+13 per/hour) has brought in $1,060.6 of pressure. The trade below 48530 (+4 tics per/hour) has brought in $753.0 of pressure. These are ON HOLD. We held exhaustion at 40956 with a 41000 low and have rallied $817.7. The trade above 41814 has brought in $736.3 of strength. The trade above 43642 has brought in $553.5 of strength. These roll into (Q) and are OFF HOLD.”“On a lower timeframe basis: We held exhaustion with a 49177 high and rolled over $554.2,” Moor said. “The break below 48185 projected this down $185 (+)—we attained $455.0. The trade below 47923 projected this down $205 (+)—we attained $428.8. The break below 47420 brought in $378.5 of pressure. On 5/15 we left a medium bearish reversal—we have come off $189.7 from 45532. Decent trade below 44780 (+5 tics per/hour) will warn of pressure, but will stop short of suggesting leaning against this as a short; but if we break below decently and back above decently, look for decent short covering.”At the time of writing, spot gold last traded at $4,327.88 per ounce for a loss of 4.27% on the week and 3.29% on the day.
What’s next for gold after the 200-day moving average breaks?
(Kitco News) – Gold and silver investors aren’t heading into the weekend with much to feel good about.The precious metals market was hit with a wave of selling pressure as prices broke below their 200-day moving average, a critical support level analysts have been watching closely.In the short term, the risks are undeniable. Momentum has clearly shifted against gold, and it would not be surprising to see additional weakness as traders continue to reduce exposure. It’s even too early to start talking about buying the dip.Market expectations that the Federal Reserve will have to take a hawkish stance to fight inflation have pushed bond yields higher and strengthened the U.S. dollar. Higher interest rates raise the opportunity cost of holding a non-yielding asset like gold, while a stronger U.S. dollar creates another headwind for precious metals.Sharp moves like this can feel decisive in the moment, but they don’t necessarily change the bigger picture. Gold has been supported for years by deeper, more persistent forces, and those haven’t gone away.Despite the chart damage, analysts remain confident that this selloff will prove to be a temporary correction. Many have even said that a year from now, they see prices back above $5,000. Several of the forces that have supported gold over the past few years remain firmly in place and, in some cases, they are becoming even stronger.This week, Kitco News attended the Sohn Montreal conference, and there was a clear message for investors: the global economy will remain fractured for the foreseeable future. The era of globalization, built on efficiency and lowest-cost production, is giving way to a world increasingly focused on resilience, security, and strategic resource control. Hudson Bay Capital CEO Sander Gerber explained at the conference that governments and corporations are no longer making decisions based solely on economics; they are prioritizing supply-chain security and geopolitical considerations. That shift creates uncertainty and inflationary pressures that traditional financial models will struggle to capture.Gold has always thrived during periods when uncertainty outweighs predictability.Even if inflation cools in the near term, the long-term outlook points toward structurally higher fiscal spending, elevated deficits, and continued pressure on central banks to accommodate government borrowing. Hard assets like gold and silver remain among the few effective hedges against this scenario.The current selloff is a reminder that bull markets rarely move in a straight line. Gold may face further downside in the weeks ahead as traders position themselves for potentially higher interest rates. However, for investors willing to look beyond the next quarter, the fundamental case for owning gold remains intact.The chart may look broken today. The long-term outlook remains solid.Despite the disappointing start to the month, I hope you have a restful weekend.
Gold price see solid selling pressure as U.S. economy created 172k jobs in May
(Kitco News) – The gold market is seeing surging selling pressure as the U.S. economy created far more jobs than expected, raising expectations that the Federal Reserve has room to raise interest rates to cool inflation.U.S. nonfarm payrolls rose by 172,000 last month, according to the Bureau of Labor Statistics. The monthly figure significantly exceeded consensus forecasts, with economists expecting job gains of around 85,000.At the same time, April’s employment data saw a significant upward revision, with the government reporting that 179,000 jobs were created that month, compared with the initial estimate of 64,000.Meanwhile, the unemployment rate held steady at 4.3%, in line with consensus forecasts.The gold market has struggled for most of the week, as prices have been unable to hold gains above $4,500. The precious metal dropped sharply in its initial reaction to the better-than-expected labor market data. Spot gold last traded at $4,441.03 an ounce, down 0.77% on the day.
Gold demand will drop this year even as supply increases, but average price will still rise 43% in 2026
(Kitco News) – The global gold supply will see modest growth in both mine production and recycling in 2026, even as gold demand is projected to decline as double-digit losses in jewelry and central bank purchases are offset by increased investor appetite for bars and coins, which will replace jewelry as the largest component of demand for the first time, while the annual average gold price is forecast to surge by 43% to a new record high of $4,920, according to the latest analysis and projections from Metals Focus.In their annual Gold Focus 2026, the independent precious metals research consultancy provided detailed forecasts for gold supply, demand and price in 2026, as well as comprehensive historical supply and demand data for 2025.”Gold rallied strongly in 2025, by 44%, its best performance since 1980,” said Matthew Piggott, Director of Gold and Silver at Metals Focus. “Although net central bank purchases were roughly a fifth lower than the year before following three consecutive years of 1,000 tonnes plus gold demand, the 2025 figure remained significantly above pre-2022 levels, with the official sector continuing to play a strategic role in the gold market. A further shift by consumers away from jewellery, in favour of bars and coins, also contributed to last year’s dynamic, with China (+28%) and India (+17%) leading the gains. For the first time in our series, physical investment is set to replace jewellery as the largest component of gold demand.”Piggott acknowledged that gold’s decline following the early year rally – and the range-bound price action that followed – have disappointed many investors, while high oil prices have impacted several key bar and coin markets. “That said, the drivers from 2025 remain intact: ongoing US policy uncertainty, persistent concerns about the dollar’s long-term outlook, elevated geopolitical risks, and stretched equity valuations,” he said. “Together, these factors reinforce gold’s role as a safe haven and portfolio diversifier, and we expect further all-time records to be achieved later this year.”In their detailed analysis, Metals Focus analysts noted that global gold mine production reached another high in 2025, rising 2.0% year-on-year to 3,817 tonnes, driven by new mines, expansions, and higher artisanal and small-scale gold mining. “Global all-in sustaining costs rose by 12% y/y to $1,552/oz, underpinned by higher royalties and inflationary cost pressures,” they wrote. “In 2026, gold mine supply is forecast to increase again, by 2.4% y/y to 3,907t, as output strengthens in all regions except for Oceania and Europe.”Meanwhile, despite gold prices setting record highs, global recycling rose by just 2.8% year-over-year in 2025, though it was enough to set a 13-year high of 1,404 tonnes. “This performance was driven by gains in Europe, as well as modest increases in most other regions, all of which offset notable weakness in South Asia,” the report said. “Scrap supply is forecast to rise by 5.1% y/y in 2026, as low near market stocks and the desire to retain gold as a safe haven limit gains despite sharply higher prices.”Central bank demand cooled somewhat compared to recent years, with net official sector purchases falling by 22% year-over-year to a four-year low of 848 tonnes. “Buying was spread geographically, as elevated US policy uncertainty encouraged further diversification,” the analysts said. “Sales were concentrated among a small number of countries, largely reflecting portfolio rebalancing after the price rally. Despite headwinds from the energy shock, net purchases are expected to remain historically high in 2026 as diversification-led drivers persist.”On the investment front, exchange-traded product (ETP) holdings increased by 803 tonnes in 2025 – the highest annual inflows since 2020 – with gains spread across regions. “Tariff uncertainty, rising US debt, concerns over Federal Reserve independence, and ongoing geopolitical turmoil all enhanced gold’s investment appeal,” they noted. “Physical investment rose 16% to a 12-year high, as strong price gains fuelled retail demand.”On the industrial side, Metals Focus said electronics demand was essentially unchanged in 2025, gains from the burgeoning AI buildout offset by weakening demand for consumer electronics. “Decorative and Other Industrial fabrication contracted by 4.9% in 2025, to its lowest level since a pandemic-affected 2020,” the analysts added.And global jewelry fabrication declined by 19% in 2025 to a five-year low of 1,646 tonnes. “Most countries saw losses, as high prices dominated the trend, prompting light-weighting, carat shifts and some substitution from gold to platinum and plated or gold-filled jewellery,” they wrote. “In 2026, the decline is expected to continue, by a further 11%, leaving fabrication only slightly above a pandemic-impacted 2020.”And while 2026 started on a positive note with a series of fresh all-time highs, the near-unprecedented momentum didn’t last. “Changing expectations on US policy rates and the fact that the market had become overbought fuelled a correction soon after,” the report noted. “The war in Iran has also added pressure to the gold price, as concerns about inflation have further reduced the scope for US rate cuts and boosted sovereign yields and steepened curves.”“In spite of these headwinds, we are confident that, once the Iran war dust settles, gold will resume its bull run,” the analysts wrote. “This is premised on our expectation that the worst will be avoided and that, on balance, policymakers will tolerate elevated inflation, rather than sacrifice growth.”“Crucially, all other factors that underpinned gold last year are likely to remain in place over the rest of 2026 and beyond.”
Azuria’s Tavi Costa: The AI ‘build phase’ is an inflation trap – here is the metals playbook the market is missing
(Kitco News) – The broader market’s conviction that artificial intelligence will usher in a deflationary era of productivity is blinding investors to an immediate, capital-intensive infrastructure scramble that is actively draining global resource supplies, according to Azuria Capital Founder and CEO Tavi Costa.In an interview with Kitco News, Costa warned that the physical infrastructure required to support the AI boom – from massive data centers to a revamped electrical grid – is colliding with a mining sector operating at historic supply deficits..embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; }”The buildup for AI to be deflationary is actually very inflationary, and that buildup is where we are,” Costa said. “Once all that is built, we’re going to be in a very deflationary world, and I do not want to own hard assets in that environment. We’re just not ready for that yet.”Costa argues this overlooked demand shock is occurring exactly as primary mine supply stagnates. While he noted that copper has entered a volatile “price-discovery phase,” he stressed that investors are overlooking other critical bottlenecks.”Zinc prices need to be adjusted much higher,” Costa said, pointing out that new zinc supply remains stalled at 2012 levels.He framed the broader picture starkly: “We can’t build mines in two years or three years. These things, it’s a view on 15 years from now. We’re seeing the rebirth of mining in a large way.”The Sovereign Debt Trap and an ‘Emerging Markets Moment’This physical supply crunch is unfolding against a backdrop of severe sovereign debt stress. Costa warned that the U.S. Treasury market is currently behaving erratically, effectively handcuffing the Federal Reserve’s ability to maintain hawkish policy over the long term.”We’re getting close to an emerging-markets moment in the Treasury market,” Costa said. “We’re playing with fire in the U.S. in a huge way.”He pushed back directly on the market’s growing expectation that newly confirmed Fed Chair Kevin Warsh will raise rates in response to accelerating inflation. Warsh, sworn in on May 22, used his opening note this week to pledge fidelity to “the best of the Fed’s traditions,” according to Reuters, while Cleveland Fed President Beth Hammack publicly suggested the central bank may need to tighten further.Costa called the hike narrative a misread.”Maybe we’ll see one rate hike, and I’m wrong here, but I really don’t think that should be any investor’s base-case scenario,” he said. His base case: “We’re probably going to see further cuts, not only the short end but also the long end eventually, because the system cannot survive if we see this.”The constraint, in his view, is the math of debt service. “Interest payments to GDP are getting to a level that is well above any other country in the world today, particularly developed economies that are more comparable to the U.S.,” Costa said. He expects Washington to eventually reach for tools last used in the 1940s, including yield-curve control. Gold’s quiet displacement of TreasuriesThe sovereign-level rotation Costa has been forecasting is now visible in the data. According to the European Central Bank’s annual report on the international role of the euro, gold now accounts for roughly 27% of total global official reserve assets, surpassing U.S. Treasuries at 22% – a shift the ECB attributed largely to gold’s price appreciation rather than net new buying. The World Gold Council reported that central banks added 863 metric tons to official reserves in 2025, with Poland, Kazakhstan, Brazil, China and Türkiye among the largest buyers.On Wednesday, Reuters reported that the Reserve Bank of India publicly denied a Bloomberg Economics analysis suggesting it had sold roughly $12 billion in gold reserves in the two weeks ended May 22, saying its physical stock remains unchanged at 880.52 tonnes.Costa said the cost of suppressing rates to service national debt will ultimately be paid through currency debasement.Populism, M&A, and the Latin American roadmapAs inflation and wealth inequality reach levels Costa compared to the 1930s, he warned of rising political risks, pointing to recent comments by Sen. Bernie Sanders proposing significant government equity stakes in AI companies.”Equity positions live on forever,” Costa said, cautioning mining executives chasing government capital that political leadership will eventually change. “The gap of valuation between emerging markets and the rule-of-law economy is starting to be in check here.”Faced with these supply realities and mounting jurisdictional risks, major mining companies are prioritizing corporate consolidation over greenfield development. Costa, who holds a position in Orla Mining, addressed the recently announced $18.5 billion all-share merger between Equinox Gold and Orla, which would create a roughly 1.1-million-ounce North American gold producer.The deal was announced just weeks before Orla halted operations on June 1 at its Camino Rojo mine in Mexico’s Zacatecas state due to what the company described in a statement as an illegal worker blockade tied to profit-sharing disputes.”I still own Orla,” Costa said. “But it is one of the situations where the fundamental story could be changing here. It just goes to show how Mexico is a difficult jurisdiction.”On the merger itself, he was constructive: “The Equinox and Orla combination – it makes a ton of sense. It’s not necessarily a synergy-type merger, but it is a sort of re-rating thesis where you get to a million ounces production a year.”Costa, who is Brazilian, has flagged Latin America as a defining investment opportunity for the next decade. With Reuters reporting that Barrick Mining is weighing a London listing to spin off its African business and refocus on North America, Costa said the structural case for Latin America has strengthened despite recent share-price pullbacks.”Latin America does carry its own risks,” he said. “But I think there’s some inherent floor of safety in those markets just given the fact that we are in a crunch for supply.” He pointed to Argentina under President Javier Milei as the regional “roadmap” for attracting capital – with reforms on inflation, currency stability and openness to foreign investment being studied by neighbors including Bolivia and Chile.Nationalization, Costa argued, “would be a very difficult endeavor to pursue in today’s markets” given the strategic value sovereigns now place on critical-mineral access.Silver’s supply mathThe structural argument extends across the precious-metals complex. According to the World Silver Survey 2026, published by the Silver Institute and Metals Focus, the silver market is projected to record a supply deficit of approximately 46.3 million ounces this year – the sixth consecutive annual shortfall. About 70% of silver is mined as a byproduct of other metals, meaning higher silver prices do not directly trigger new primary mine development.Costa expects that imbalance to resolve through a violent upside repricing rather than industrial demand destruction. “Repricing would probably be on the upside given the supply constraints,” he said.’Early to mid innings’So how should capital allocators accurately price jurisdictional risk into their models today? How does a professional investor survive the 60% to 70% drawdowns that are notorious in the mining sector? And what is the exact macroeconomic trigger that would force Costa to immediately liquidate his hard-asset portfolio?Watch Kitco’s full interview with Tavi Costa for the complete macro playbook, including Costa’s specific evaluation framework for mid-tier miners and why he believes the commodity supercycle is still in its “early to mid innings.”
Commerzbank is not giving up on metals, sees $4,800/oz gold, $80/oz silver by year-end
Rising inflation pressures due to the ongoing war in Iran mean investors will have to wait a little longer for gold to break out of its current consolidation phase, according to Carsten Fritsch, commodity analyst at Commerzbank.Fritsch noted that gold’s price action since the war started has been counterintuitive to fundamental market beliefs. The precious metal, traditionally seen as an inflation hedge, has fallen even as the global energy crisis pushes consumer prices higher. At the same time, despite the chaos in the Middle East, gold has been unable to attract a safe-haven bid.However, Fritsch explained that the gold market is currently struggling as market expectations around U.S. monetary policy have shifted dramatically since the Iran conflict began.“Before the start of the Iran war, market participants had expected the Fed to cut interest rates by around 50 basis points this year. Since the start of the war and the resulting rise in oil prices, there has been a noticeable shift in interest rate expectations. Fed Funds futures currently imply a US key interest rate of around 3.8% at the end of the year. With an effective Fed rate of just over 3.6%, the market therefore expects the Fed to raise interest rates later this year. A 25-basis-point rate hike is fully priced in by spring 2027,” he said.According to the CME FedWatch Tool, markets see more than a 50% chance of a rate hike in December.The threat of rising interest rates is increasing the opportunity cost of holding gold, a non-yielding asset.In this environment, Commerzbank has adjusted its year-end price target. The German bank sees gold prices ending the year at around $4,800 an ounce, down from its initial target of $5,000.“This implies some upside potential for the coming months, as our new base-case scenario envisages a two-month transition period, followed by the reopening of the Strait of Hormuz and a decline in Brent oil prices, which should reverse the current expectations of interest rate hikes,” Fritsch said.The updated outlook comes as gold prices continue to struggle below $4,500 an ounce. Spot gold was last trading at $4,483.95 an ounce, up 1.11% on the day. However, Commerzbank’s updated target suggests the market could see an 8% rally from current prices by year-end.Fritsch said there is still potential for gold, as Commerzbank does not expect the Federal Reserve to raise rates this year. The bank’s economists forecast that rates will remain unchanged and that the next move is still likely to be a cut.However, Fritsch said the next rate cut is not expected until at least the second quarter of 2027.“We therefore maintain our price forecast of USD 5,200 per troy ounce for the end of 2027,” he said. “The structural factors supporting gold remain entirely intact. These include eroding confidence in the US dollar as a reserve currency, which is likely to lead to further gold purchases by central banks. Investor interest in gold is also likely to remain high. This is supported by the already high and rapidly rising levels of government debt, which are leading to monetary policy that is too loose when measured against inflation.”Along with its revised gold forecast, Fritsch has also downgraded his silver outlook. Commerzbank expects silver prices to end the year at around $80 an ounce.“In addition to the lowered gold price forecast, weaker industrial demand for silver also points to a slightly lower silver price. According to the latest assessment by the Silver Institute, industrial demand is set to decline for the second consecutive year, falling to a four-year low. Nevertheless, the silver market remains tight, which is why we expect the silver price to rise in the coming year,” he said.Commerzbank projects silver prices to end 2027 at around $90 an ounce, down from its previous target of $95 an ounce.
TD Securities cuts H2 2026 gold price forecasts as markets price in Fed rate hike
(Kitco News) – Rising expectations that the Federal Reserve will have to hike interest rates rather than cut them by the end of the year continue to take their toll on the precious metals market, with gold prices falling below $4,500 an ounce on Wednesday. One Canadian bank sees risks of further downside through the second half of the year.On Tuesday, the commodity team at TD Securities led by Bart Melek downgraded its gold price forecasts for the next two quarters.The Canadian bank expects the yellow metal to average around $4,550 an ounce in the third quarter, a 3% downward adjustment from its previous forecast. At the same time, analysts see gold prices averaging around $4,700 an ounce in the final three months of the year, down 10% from the previous projection.“Higher inflation expectations, associated with the negative supply shocks, have pushed yields across the curve higher, kept the USD firm, and prompted markets to begin pricing in a Fed hike in late 2026,” said Melek.According to the CME FedWatch Tool, markets currently see more than a 50% chance of a rate hike in December. Expectations have shifted dramatically as the ongoing war in Iran continues to impact energy markets, pushing prices significantly higher and driving inflation upward. Those inflation pressures are slowly starting to become embedded in the broader economy.TD Securities said it could not rule out gold testing support at $4,000 an ounce if oil prices remain above $100 a barrel, which it sees as a likely scenario.While Melek has downgraded his gold price forecast for the second half of the year, he sees Brent crude oil averaging $104 a barrel, with growing risks that prices could spike to $150 a barrel this year.“With Middle East production likely not returning to pre-war levels until Oct.-Nov. at the earliest, and lengthening logistical time lags preventing a speedy return to a balanced market, global inventories will plunge by another 800 million barrels even if a deal is reached, stressing and incapacitating parts of the global petroleum supply chain,” he said.Although gold is expected to struggle through the second half of the year, Melek does not believe the market has topped; TD Securities has also raised its long-term gold price forecasts, with prices recovering by the second quarter of 2027.The bank expects gold prices to average around $5,350 an ounce in the second quarter of 2027, up 7% from its previous forecast.“We expect inflation pressures to ease after the Iran war concludes, which will allow interest rates to move lower, the dollar to weaken, and investors to once again talk about the debasement trade. Fear of financial repression, elevated geopolitical risks, and firmer investor and central bank buying could see gold trade above our Q2 2027 average of $5,350/oz,” Melek said.TD Securities is also maintaining its bullish stance on silver and platinum group metals (PGMs). The bank expects silver prices to average around $78.50 an ounce in the third quarter, up 8% from its estimate at the start of the year.In the final quarter of the year, silver prices are forecast to average around $81.00 an ounce, a 12% increase from the previous forecast. By the second quarter of next year, the bank sees silver prices averaging around $84.50 an ounce, a 24% increase from its previous forecast.“The long-term silver and PGM outlook is upgraded due to gold’s strength and an improving economy. Both silver and platinum are likely to see deficits as supply remains weak, while investor and industrial demand increase following the Persian Gulf conflict,” Melek said.
Indian central bank denies media report of $12 billion gold reserve sales
(Kitco News) – One day after a bombshell report from Bloomberg claimed the Reserve Bank of India (RBI) sold gold reserves worth roughly $12 billion in the two weeks through May 22, the central bank issued a firm denial.The RBI said in a statement on Wednesday that its physical stocks of the precious metal remain unchanged at 880.52 tonnes.”The Reserve Bank of India (RBI) has come across reports in certain sections of the media about RBI’s sale of gold,” the central bank said. “The RBI emphasizes that these reports are not correct.”India’s Press Information Bureau also called the media report “fake” in a post on X, and reiterated that the RBI’s bullion reserve remained unchanged.On Tuesday, a Bloomberg Economics analysis based on publicly available data claimed that the RBI likely sold gold reserves worth roughly $12 billion in the two weeks through May 22, while buying $7.5 billion of foreign-currency assets.The BE analysis from senior India economist Abhishek Gupta drew on publicly available data to infer that India’s central bank appears to have offloaded a substantial portion of its gold holdings to shield its foreign currency assets from the cascading fallout of the war in the Middle East.The fall came despite the recent hike in import duties on the precious metal, which should have served to boost the value of the RBI’s holdings of bullion and dollars, suggesting the RBI was selling gold, Gupta said.The $7.5 billion decline was largely due to a $4.5 billion fall in the value of the central bank’s gold holdings, week-on-week. The value of the RBI’s foreign currency assets also shrank by nearly $3 billion to $543 billion, the data showed.The country’s foreign exchange reserves fell to a more than one-year low of $681.4 billion in the week ended May 22, from $688.89 billion a week earlier, RBI data showed on May 29.“The purported sales underscore policymakers’ concerns about the pressure India is facing from sustained capital outflows and higher oil prices as the Iran war and effective closure of the Strait of Hormuz drag on,” the Bloomberg report noted. “They also show the RBI is prioritizing reserves of liquid foreign currency as a wider current-account deficit weighs on the rupee.”RBI governor Sanjay Malhotra is weighing all options available to stabilize the rupee, including an interest-rate hike and raising dollars from investors overseas, Bloomberg News reported earlier. “The RBI’s interventions in the foreign exchange markets have had some effect, helping the rupee outperform most peers in Asia since May 20, when the currency fell to an all-time low,” the report noted.India is the world’s third-largest oil importer, and the nation is burning through foreign currency as the Iran war and the closure of the Strait of Hormuz drives up its energy costs and weakens the currency. At the end of March, India’s central bank held 880.52 tonnes of gold, of which 77% was held domestically, with most of its overseas holdings stored at the Bank of England and the Bank for International Settlements, according to the RBI’s latest foreign exchange report from April.Authorities are expected to unveil further measures to support the rupee as soon as this week.This month’s sudden changes to import policies in the world’s second-largest gold and silver market have triggered a cascade of impacts across India’s metals and currency markets.The Indian rupee hit a low of 96.923 per U.S. dollar on May 20 and spent several hours bumping up against the 97 level before regaining some of its losses over the following days.
