Gold Holds Ground Amid May Volatility

Gold prices remained steady in the final week of May, ending the month nearly flat at US$3,278/oz, down just 0.7%. Despite this pause, gold is still up an impressive 26% year-to-date, driven by persistent macroeconomic and policy uncertainties. The World Gold Council’s Gold Return Attribution Model (GRAM) indicates that May’s return was supported by heightened tariff-related policy risks, rising inflation expectations, and lagged effects from April’s U.S. dollar decline.

However, these were offset by negative momentum factors, particularly April’s strong performance and significant outflows from gold-backed ETFs. May saw global gold ETFs register their first monthly outflows since November 2024, totaling US$1.8bn (19t), with North America (–US$1.5bn) and Asia (–US$489mn) leading the declines. Europe, in contrast, posted mild inflows of US$225mn, mainly driven by French funds amid concerns over sluggish growth, political instability, and renewed U.S. trade threats. COMEX-managed money positions rose modestly (+US$0.5bn), but remain far below December 2024’s highs.

U.S. Treasury yields rose in response to expectations of prolonged higher interest rates, increasing the opportunity cost of holding gold. Nonetheless, concerns about U.S. fiscal sustainability—amplified by Moody’s downgrade and the proposed “One Big Beautiful Bill Act”—could continue to boost demand for gold as a safe-haven asset. In Asia, China drove ETF outflows amid equity rebounds and RMB gold price weakness, while Japan marked its eighth straight month of inflows. Despite May’s setbacks, gold market liquidity remained elevated, and the broader macro environment suggests that investor appetite for gold could remain strong heading into June.