Gold’s Contradictory Rally: How Inflation and a Fragile Iran Truce Forged a Friday Advance

Gold closed the trading week at $4,569.90 an ounce on Friday, gaining 1.57% from the previous day in a move that defied conventional logic. A tentative rapprochement between Washington and Teheran should have sapped the metal’s safe-haven appeal, while fresh US inflation data pushed the odds of another Federal Reserve rate hike to nearly 50%. Yet bullion climbed all the same, finding support in a market that now wrestles with two conflicting narratives.

A Geopolitical Glimmer That Didn’t Hurt

Reports of a possible 60-day memorandum of understanding between the US and Iran, aimed at reopening the Strait of Hormuz to unimpeded shipping, initially sent oil prices sliding. For gold, the reaction was more nuanced. The absence of a final deal—Iranian spokesman Baghaei cautioned that nuclear talks continue—left enough uncertainty to keep the safe-haven bid alive. Over the course of the week, the yellow metal had fallen to a two-month low of $4,370, but it bounced hard from the key support zone at $4,381, staging a bullish reversal on Friday. At its session peak, gold touched $4,596.60 before settling slightly lower.

Sticky Inflation Reshapes the Rate Calculus

The rally was reinforced by macro data that reinforced the “higher-for-longer” interest-rate narrative. The core PCE price index, the Fed’s preferred inflation gauge, accelerated to 3.3% year-on-year in April, marginally above March’s reading. The Chicago PMI for May surged to 62.7 points, far exceeding the 50.5 consensus estimate. Markets now price in a 42% to 50% probability of a rate increase by year-end—a headwind that would normally weigh on non-yielding assets like gold. Yet the metal’s resilience suggests other forces are absorbing that blow.

Should investors sell immediately? Or is it worth buying Gold?

Demand Drivers Stack the Deck

Central banks remain voracious buyers, motivated by reserve diversification and a desire to reduce dollar dependence. That structural bid has created a floor beneath the market. At the same time, institutional sentiment is firmly bullish. J.P. Morgan projects gold at $6,300 by year-end, UBS is above $5,900, Goldman Sachs is more cautious at $5,400, and Macquarie sees an average of just $4,323—a wide dispersion that underscores the uncertainty. On the COMEX, net long positions rose by nearly 5,000 contracts to just over 100,000 contracts, signalling renewed speculative conviction.

Technical Levels to Watch

Chartists see the next upside target at $4,660. The support zone around $4,381 has held twice in recent weeks; a decisive break below that level could open the path to $4,094. The consolidation range between $4,370 and $4,600 is likely to persist as long as the geopolitical and macro outlooks remain in flux.

One Cloud on the Horizon: India

A softer headwind came from India, where the government raised import duties on gold to 15%. The move briefly pushed local prices below the global benchmark, potentially dampening demand from the world’s second-largest consumer. Despite that drag, gold’s year-to-date gain stands at 5.87%, still 16% below the January high of $5,450.

For now, the metal is threading a narrow needle: too much geopolitical calm could erode its risk premium, while a rate hike would test the conviction of longs. But with central bank buying as an anchor and inflation refusing to fade, the week’s advance may be more than a temporary reprieve.

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