Gold prices ended May nearly unchanged, despite considerable market fluctuations, as factors such as tariff news and inflation contributed positively, but momentum effects, including ETF outflows, countered the overall upward push. As of the close of May, gold was priced at US$3,278, down by 0.7% for the month, though it remained up a significant 26% year-to-date.
May Review: A Mixed Month for Gold
The gold market in May experienced a period of volatility, with several influences—both positive and negative—playing out. According to our Gold Return Attribution Model (GRAM), the month’s performance was influenced by a combination of tariff-related policy risks, rising inflation expectations, and a lagged effect from the sharp drop in the U.S. dollar in April. These factors, primarily related to risk and uncertainty, provided support for gold prices. However, ETF outflows and a strong gold return in April (both momentum factors) acted as significant headwinds.
ETF outflows during May totaled US$1.8 billion (or -19 tonnes of gold), with North America accounting for the bulk of the outflows—US$1.5 billion (or -16 tonnes). This decline came after a temporary easing of tariff tensions. Although there was a small rebound in investor positions—up by US$0.5 billion (4 tonnes)—it did not fully counteract the previous sell-off. As of May, investors maintained net positions slightly above 13% of open interest, a significant drop from the highs of 35% seen in December 2024.
Looking Ahead: Tariffs, Stagflation, and Central Bank Challenges
As the global tariff landscape continues to evolve, the impact is starting to be felt, but not necessarily in the intended areas. The tariffs, while meant to curb trade imbalances, are increasingly contributing to stagflation risks, particularly in economies that are already grappling with slow growth and rising inflation. This creates challenges for several central banks, which are struggling to balance economic growth with inflation control ahead of their June policy meetings.
While tariffs were expected to create short-term inflationary pressures, they have inadvertently increased uncertainty in both the manufacturing and retail sectors. This has led to heightened concerns over stagflation—a toxic mix of stagnant economic growth and persistent inflation. As central banks look toward their upcoming meetings, many will be navigating these complexities, with some likely opting to hold or even ease monetary policy to cushion their economies against rising costs.
Market Dynamics and ETF Trends
The relationship between gold and ETF investor behavior will be a key focus moving forward. Despite the inflows in April that followed a significant dollar drop, ETF outflows in May suggest that investors are cautious, pausing in light of the tariffs and uncertainty. The COMEX managed money positions showed a notable drop in April, but slight recovery in May, with market participants still wary of significant market moves until the geopolitical landscape stabilizes.
In conclusion, while gold has maintained its upward momentum for the year, driven by a mix of political risks, inflation expectations, and the dollar’s performance, the market remains susceptible to shifts in investor sentiment, particularly as ETF outflows continue. As the tariff situation intensifies, and stagflation risks rise, gold’s role as a safe-haven asset is expected to continue to be crucial, though the market may experience bumps along the way.
Chart 1: Momentum factors such as ETF outflows and strong returns in April exerted a drag on May’s performance, while political risk, inflation, and the weakening U.S. dollar supported the market.
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