Gold Slumps on Rate Shock and India's Import Tax, Defying Record Central Bank Purchases
Published on 05/16/2026 at 17:34 | Redaktion boerse-global.de
Gold’s rally hit a wall last week in a stark demonstration that even unprecedented buying from the official sector cannot insulate the metal from rising rates and a sudden pullback in physical demand from one of the world’s largest consumers. The LBMA price settlement on Friday of $4,535.37 per ounce — a 2.5% single-day drop and a weekly loss of roughly 4% — came despite central banks having just added a record $37 billion of bullion to their reserves in the first quarter.
The trigger was a double dose of macro pressure. April’s US consumer price index rose to 3.8%, the hottest reading since May 2023, while the yield on the 10-year Treasury surged to 4.59%, its highest since February 2025. Both moves were fuelled by the ongoing Iran conflict, which continues to lift energy costs and inflation expectations. The interest-rate repricing that followed has been aggressive: markets now fully price a Federal Reserve rate increase by March 2027, with better than 50% odds of a move before the end of 2026. For a non-yielding asset like gold, that is a structural headwind.
India piled on the pain. Prime Minister Narendra Modi’s government reinstated a 15% import duty on gold alongside a 3% sales tax, aimed at shoring up the rupee amid regional tensions. The impact was immediate and severe. Physical demand all but evaporated, and local prices fell to a record discount of more than $200 relative to London quotes. Given India’s status as one of the top physical consumers globally, the removal of that buyer from the market struck directly at the physical trading floor.
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Political signals from Washington added another layer of uncertainty. Reports that lawmakers are advancing the “Bitcoin Act of 2025” — a proposal to revalue the US gold reserves, still carried on the books at the 1973 price of $42.22 per ounce, and channel the resulting paper gains into a strategic Bitcoin fund — rattled speculative investors. While the legislative path is far from certain, the notion that the world’s largest official gold holder might shift its balance-sheet priorities toward digital assets spooked sentiment.
Yet beneath the sell-off, the structural demand story remains intact. Central banks bought a net 244 tonnes of gold in the first quarter of 2026, not only topping the prior quarter but also the five-year average. Poland was again the standout buyer, adding 31 tonnes to lift its total holdings to 582 tonnes. The People’s Bank of China increased its hoard by 7 tonnes to 2,313 tonnes. Private investment also held up: global bar and coin demand reached 474 tonnes, the second-highest quarterly figure on record, with China alone surging 67% to a record 207 tonnes. Gold ETFs, meanwhile, added 67,571 ounces worth roughly $316.8 million in the last trading session, suggesting some long-term investors used the dip to build positions.
Technicians see a critical test ahead. The intraday low on Friday was $4,507.41, putting the psychologically important $4,500 level in play. The zone between $4,483 and $4,530 is now viewed as key support; a hold there would keep the pullback contained. Above that, the 100-day moving average near $4,790 is the next notable resistance. The relative strength index has slipped into oversold territory, but momentum has yet to flash a reliable reversal signal. The London morning auction on Monday will be the first real gauge of whether the sell-off can stabilise. A bounce from the $4,500 area could open the door to a recovery toward $4,650; a clear break below would likely extend the selling toward $4,420.
Forecasters remain split on the medium-term outlook. JPMorgan expects gold to reach $6,300 by the end of 2026, while Goldman Sachs sees it at $5,400. The LBMA consensus survey of 28 analysts points to $4,742. Adding to the uncertainty, Kevin Warsh’s nomination to succeed Jerome Powell as Fed chair has cleared the Senate committee, and how the new leadership handles persistent inflation could move the gold market in the weeks ahead more than any single central bank purchase order.
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