According to the most recent Gold Market Commentary published by the World Gold Council (WGC), gold prices slightly decreased in May 2026 as investor risk appetite improved and modest withdrawals from gold exchange-traded funds (ETFs) reduced demand for the safe-haven asset. However, the industry group thinks that later this year, the US Federal Reserve may decide to raise interest rates, which would eventually help bullion.
In terms of US dollars, gold dropped 1.4% in May, closing the month at USD 4,546 per ounce. Although prices increased in Turkey and India as a result of policy changes and local currency weakness, the precious metal also decreased in the majority of global currencies. Gold prices in India increased 4.1% throughout the month and have risen 17.6% so far this year.
Positive market mood, reduced volatility, and withdrawals from gold ETFs in Asia and the US were the main factors impeding gold performance, according to the WGC’s Gold Return Attribution Model (GRAM). During the month, investors from all around the world withdrew over USD 2.3 billion, or 17.3 tons, from gold ETFs.
Although inflows into European gold ETFs and a declining US dollar provided some assistance, these elements were not enough to counteract overall market pressures.
Fed Rate Increases May Help Gold
In view of ongoing inflationary pressures and a robust economy, investors are increasingly pricing in the chance that the US Federal Reserve may hike interest rates later this year, according to the survey, which revealed a significant shift in market expectations.
The WGC contends that historical data presents a more complex picture, despite the fact that rising interest rates are typically seen negatively for gold since they increase the opportunity cost of storing non-yielding assets.
The council pointed out that after more than half of all rate increases by the Federal Reserve since 1997, gold has produced positive returns. It maintained that the rate hike itself is frequently less important than the larger economic environment. Specifically, rather than being an indication of policy strength, markets may see future rate increases as an indication of underlying economic fragility, policy uncertainty, or ongoing inflation.
The WGC identified a number of past instances, such as rate increases in 2006, 2017, 2018, 2022, and 2023, when gold prices increased in spite of tighter monetary policy, primarily due to investor concerns about financial stability, economic growth, or Federal Reserve policy mistakes.
The dollar is more significant than interest rates.
The study claims that historically, fluctuations in the US dollar have had a bigger impact on gold prices than changes in interest rates. In addition to diversification away from US assets, the WGC anticipates medium-term growth and yield convergence to put downward pressure on the dollar and possibly create a favorable environment for gold.
The council also pointed out that demand from significant gold-consuming nations like China and India, in addition to ongoing central bank purchases, is inherently less vulnerable to US monetary policy and may sustain bullion prices over the long run.
Oil Prices Become a Major Risk
The WGC warned that gold faces a number of short-term challenges despite its optimistic long-term outlook. While ETF inflows are still muted, physical demand has decreased in some regions, such as India. The ongoing hostilities surrounding the Strait of Hormuz were identified as a major risk factor in the research.
Before the longer-term inflationary effects become clear, a significant increase in oil prices brought on by supply disruptions or inventory shortages might initially strengthen the US currency and raise bond yields, putting more pressure on gold prices. According to the WGC, energy markets are increasingly influencing global bond market movements and inflation forecasts.
The World Gold Council thinks the market would gain if future rate increases by the Federal Reserve are seen as an indication of economic stress rather than policy credibility, even though gold is still susceptible to short-term volatility. Despite present market challenges, gold prices may be supported by ongoing central bank purchases, strong Asian demand, and anticipations of a declining US currency.
