Gold Slips from Record Highs: Diversification Support Grows

Gold's momentum, which accelerated through April with record highs of US$3,500/oz, has waned, with the LBMA Gold PM price falling 8% in May so far, settling around US$3,192/oz. The initial surge was driven by a weakening US dollar, geopolitical tensions, and strong ETF inflows, but recent declines reflect profit-taking, a China-US trade truce, and reduced haven demand. The US-China tariff reset—with China reducing tariffs from 145% to 30% and the US from 125% to 10%—has cooled market fears and lifted risk sentiment, weighing on gold prices. 

In India, gold mirrored global trends, with domestic prices down 5% m-t-d, cushioned by a stronger rupee. Akshaya Tritiya, while boosting sales for large retailers, saw mixed results, with consumers deferring purchases amid high price volatility. Bullion segments, notably low-weight coins, outperformed jewelry demand. 

Indian gold ETFs experienced continued net outflows in April, driven by profit-taking, but assets under management rose 4% m/m amid elevated prices. The Reserve Bank of India slowed its gold purchases, adding just 3.4t YTD, though total reserves remained at a record 879.6t. 

Despite the pullback, gold’s diversification appeal is increasingly crucial as bond-equity correlations turn positive. With inflationary pressures undermining traditional safe havens like government bonds, gold’s role as a portfolio stabilizer is gaining prominence. Analysis suggests that in a positive bond-equity correlation environment, higher allocations to gold are necessary to maintain risk-adjusted returns. 

While gold prices may face short-term headwinds, structural drivers of demand—including diversification needs and geopolitical risks—remain supportive.