Gold's Fragile Advance: A Geopolitical Reprieve Meets Stubborn Inflation

Gold managed to eke out a modest weekly gain, closing Friday at $4,569.90—a 1.57% daily advance—but the path forward remains clouded by a potent mix of easing Middle East tensions and persistent price pressures in the US economy. The bounce from recent lows has lifted the metal about 1% on the week, yet it still sits roughly 16% below its 52-week high of $5,450.

The catalyst for Friday's move was a diplomatic thaw between Washington and Tehran. US Vice President JD Vance highlighted significant progress in negotiations aimed at a 60-day ceasefire and reopening the Strait of Hormuz. Iranian spokesman Baghaei cautioned that a final deal remains elusive and that nuclear talks are still active. Notwithstanding the caveats, the prospect of détente pushed oil prices lower. For gold, that's a double positive: lower energy costs ease inflation expectations, reducing the urgency for further Federal Reserve rate hikes. Commerzbank analyst Carsten Fritsch notes that the yellow metal is currently less a safe haven and more a beneficiary of falling inflation forecasts—a shift in narrative that supported the recovery from a two-month low near $4,370.

Yet Friday's data threw a wrench into that narrative. The core PCE deflator—the Fed's preferred inflation gauge—rose to 3.3% year-over-year in April, slightly above March's reading. The Chicago PMI for May surged to 62.7 points, far surpassing the 50.5 consensus estimate. These prints have convinced markets to price in a 42-50% probability of another rate increase by year-end. For a non-yielding asset like gold, that is a structural headwind that has kept the rally in check and pushed the metal into a consolidation phase. The relative strength index, hovering around 50, confirms a market that is neither overbought nor oversold, leaving room for further moves in either direction.

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

Technically, the bounce from the $4,381 support zone proved decisive. After touching a two-month trough, gold staged a bullish reversal that was accompanied by record highs in the Nasdaq 100 and S&P 500. The next upside target lies at $4,660, with the April high of $4,862 acting as a major resistance. On the downside, the SuperTrend support at $4,333 held firm, and the 50-week moving average near $4,224 provides a deeper floor. The bears have not been silenced, however: a bärisch (bearish) MACD signal tempers the upward momentum, and trading volumes during the recovery were moderate, suggesting institutional investors are waiting for a clearer geopolitical signal.

The fundamental picture is a study in contrasts. COMEX net-long positions rose by nearly 5,000 contracts to just over 100,000, yet the push came with limited follow-through from large funds. Meanwhile, global central banks continue to accumulate gold at a steady pace, providing structural support beneath the market. A near-term headwind comes from India, where the government hiked import duties to 15%, causing physical gold to trade at a discount to the international spot price. Those tariff measures have not derailed the year-to-date advance, which stands at 5.87%.

Despite the mixed near-term signals, major houses remain bullish on the longer-term outlook. JPMorgan sees gold hitting $6,000 by year-end, while Goldman Sachs targets $5,400 by end-2026. Whether the metal can close the gap to its January peak depends on two big unknowns: whether the US-Iranian negotiations yield a lasting peace agreement and whether the Fed's next move is a cut or a hike. For now, the market remains in a tug-of-war between easing geopolitical risk and sticky inflation, with the $4,381 floor and $4,862 ceiling defining the battlefield.

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