Gold prices moved lower on Wednesday as investors reacted to a resurgence in US inflation that strengthened expectations for tighter monetary policy from the Federal Reserve.
Spot gold traded near $4,700 per ounce after declining roughly 0.4% during the previous session.
The pullback followed the release of stronger-than-expected US consumer price index data, which showed inflation accelerating at its fastest annual pace since 2023.
Higher energy costs, particularly gasoline prices tied to ongoing Middle East tensions and the Iran conflict, played a major role in driving inflation higher.

Fed Rate Hike Expectations Increase

The latest inflation figures have significantly altered market expectations surrounding US interest rates.
Interest-rate swap markets are now pricing roughly a one-in-three probability that the Federal Reserve could deliver at least one interest rate hike before the end of the year.
Only weeks ago, markets had largely expected the Fed to begin easing policy rather than tightening further.
Higher interest rates generally create headwinds for gold because the precious metal does not generate interest income, making interest-bearing assets comparatively more attractive.
At the same time, rising Treasury yields and a firmer US dollar have also pressured precious metals in recent trading sessions.

Gold Remains Resilient Despite Higher Rates

Despite the recent pullback, gold has remained relatively stable compared with previous tightening cycles.
Analysts noted that gold’s resilience during periods of rising interest rates has become more pronounced in recent years.
JPMorgan Private Bank strategist Yuxuan Tang said the market has witnessed a similar pattern since 2022, where gold prices remained resilient even during periods of aggressive rate increases.
According to Tang, one of the primary factors supporting gold is sustained buying activity from global central banks.
Central bank demand has continued providing long-term structural support for bullion prices as governments diversify reserve holdings and reduce dependence on traditional reserve currencies.

Strong Central Bank Demand Supports Market

Central bank purchases have become an increasingly important driver of global gold demand.
Many countries have continued increasing gold reserves amid geopolitical uncertainty, inflation concerns, and ongoing volatility in global financial markets.
This institutional demand has helped offset some of the pressure created by rising interest rates and stronger equity market performance.
Analysts also continue viewing gold as a useful portfolio diversification asset because of its relatively low correlation with other major asset classes.

India Raises Gold Import Tariffs

Additional pressure on physical gold demand emerged after India raised import tariffs on gold and silver to roughly 15% from 6%.
India remains the world’s second-largest gold consumer, making policy changes in the country highly influential for global bullion demand.
The tariff increase is part of broader efforts by Indian authorities to support the country’s currency and strengthen foreign exchange reserves.
Higher import duties could potentially reduce near-term retail gold demand in one of the world’s largest physical bullion markets.

Broader Precious Metals Mixed

Other precious metals showed mixed performance alongside gold.
Silver prices remained relatively stable after posting strong gains earlier in May, while platinum and palladium both edged lower.
Meanwhile, the Bloomberg Dollar Spot Index strengthened modestly following the inflation report, adding additional pressure to commodity markets priced in US dollars.
Investors are now expected to closely monitor future inflation reports, Federal Reserve commentary, and developments in global energy markets for further direction on gold prices.