Tariff news and inflation helped but momentum effects including ETF outflows, countered, to leave gold flat for the month.
Tariffs are starting to bite, but not where intended, pushing stagflation risks higher and hamstringing several central banks ahead of their June meetings.
Gold prices ended the month of May almost flat (-0.7%) at US$3,278, albeit with some intra-month volatility. Year-to-date, gold remains up a staggering 26% (Table 1).
Our Gold Return Attribution Model (GRAM) suggests that tariff-related policy risk, a rise in inflation expectations (both Risk and Uncertainty factors) and lagged follow-through from the dollar plunge in April contributed positively, while ETF outflows and the strong gold return in April (both Momentum factors) were drags on returns in May (Chart 1).
ETF outflows of US$1.8bn (-19t) were dominated by North America (-US$1.5bn, -16t), on a pause in tariff tensions. Following a sizeable drop in COMEX managed money net longs in April, investors increased net positions slightly by the equivalent of US$0.5bn (4t) in May. They remain well off the highs reached in December 2024 (35% net long as a % of open interest) sitting just above 13%.
Gold price and performance in key currencies*
| USD (oz) |
EUR (oz) |
JPY (g) |
GBP (oz) |
CAD (oz) |
CHF (oz) |
INR (10g) |
RMB (g) |
TRY (oz) |
AUD (oz) |
|
| May price* | 3,278 | 2,888 | 15,176 | 2,435 | 4,503 | 2,695 | 95,058 | 768 | 128,473 | 5,096 |
| May return* | -0.7% | -0.7% | 0.2% | -1.6% | -1.3% | -0.7% | 1.2% | -1.4% | 1.1% | -1.3% |
| Y-t-d return* | 25.6% | 14.6% | 15.0% | 16.8% | 19.9% | 13.8% | 25.2% | 24.6% | 39.2% | 20.8% |
| Record high price* | 3,434 | 3,003 | 15,707 | 2,573 | 4,741 | 2,808 | 98,228 | 830 | 132,083 | 5,367 |
| Record high date* | 22-Apr 2025 |
22-Apr 2025 |
08-May 2025 |
22-Apr 2025 |
22-Apr 2025 |
22-Apr 2025 |
22-Apr 2025 |
22-Apr 2025 |
02-Jun 2025 |
22-Apr 2025 |
Source: Bloomberg, World Gold Council
*As of 31 May 2025. Based on the LBMA Gold Price PM in USD, expressed in local currencies, except for India and China where the MCX Gold Price PM and Shanghai Gold Benchmark PM are used, respectively.
A decision by US federal courts to block the Trump administration’s sweeping tariffs lit a relief rally in risk assets on 29 May. However, this might only be temporary as several options appear available to the administration to sidestep the judement.1 For now we assume little change.
Consensus sees tariffs as ultimately inflationary (See Chart 3). Yet only a faint ripple, like in the Jurassic Park water glass, has appeared so far. Official inflation data remains soft but the unofficial Truflation2 measure has picked up firmly (Chart 2).
And the reason it’s expected is that despite the US administration’s steadfast claim that tariff countries will pay, data hasn’t confirmed it yet and markets are unsure.
So who does foot the bill - the exporter, the importer, or the end consumer? So far, it appears that exporters are not absorbing the tariffs as US import prices, which exclude tariffs, are unchanged (Chart 2). If exporters like China were absorbing, those prices should be lower.3
Producer price index (PPI) data from April – which excludes imports – suggested a contraction in margins as capital equipment surged but core finished consumer goods did not. And final demand trade services prices, a proxy for margins, dropped by 1.6%.4
At least officially, and for now, US companies appear to be eating the tariffs, something which the public admonishment of Amazon and Walmart’s attempt to pass on tariffs to consumers seems to back up.5
But the expectation is that sooner or later, consumers will also feel the pinch. These dynamics of weaker margins and higher consumer prices have a stagflationary whiff about them, as consensus expectations lay bare (Chart 3).
Prior research shows that stagflation is an environment that particularly favours gold.
The theory behind it is quite simple:
Historically it hasn’t always played out like this, but, on average, stagflationary episodes have been quite good for gold relative to stocks, cyclical commodities and bonds. But we don’t necessarily have to wait for such an environment to play out. Further analysis suggests that stagflationary expectations are nearly as influential in driving gold’s relative average outperformance (Chart 4), whether we get there or not.
Last month we discussed the Fed’s dilemma in cutting rates, which they acknowledged in their May FOMC minutes.6
Other central banks are in a similar predicament: a surprise inflation surge in April will likely see the Bank of England err on the side of caution on 19 June and hold rates steady.7 The European Central Bank appears a little more concerned about growth and a cut on 5 June before a pause in July is on the cards,8 while the Reserve Bank of India is set for a third consecutive cut on growth concerns on June 6.9 And the Bank of Japan is expected to hold rates steady on 16 June, facing rising inflation alongside tariff-led growth risks.
The challenge the central banks face, particularly the Fed, is having their foot on the break and accelerator at the same time. With the Fed’s next meeting scheduled on 18 June, the market is all but convinced of no change to the policy rate.10
Communication, along with an update to projections, will therefore be key as the Fed watches for hard-data confirmation of a material slowdown while ignoring an expected ‘transitory’ rise in inflation from tariffs.
This could embolden treasury bears and sustain gold support through any rise in yields.
Notwithstanding the temporary setback for Trump’s policies following the US federal court decision, the stagflationary picture continues to develop. But the hitherto strong run-up in gold prices makes incremental gains perhaps harder to achieve.
1Here are the White House's tariff options after losing key court case, according to Goldman Sachs | Morningstar; How Trump Could Still Implement His Tariff Agenda
2Independent, economic & financial data in real time on-chain | Truflation
3Globaldata Lombard Street Research
5Trump turns the screws on big companies amid tariff fight - POLITICO
6https://www.cnbc.com/2025/05/28/fed-warns-it-could-face-difficult-tradeoffs-if-tariffs-reaggravate-inflation-.html
7BoE's Bailey says uncertain outlook demands careful approach to rate cuts | Reuters
8ECB to cut rates on June 5 but skip July as end of easing campaign nears: Reuters poll | Reuters
9RBI to cut rates by 25 bps on June 6, then once more in August - Reuters poll | Reuters
