Gold prices have softened significantly since hitting an all-time high of $2,450 per ounce in May, now trading around $2,329 per ounce. According to data from the World Gold Council, China's physical gold demand fell to its lowest level in four years during May, a key factor behind the pullback.
Physical Demand Dwindles in China
The World Gold Council analyst Jia reported that gold withdrawals from the Shanghai Gold Exchange totaled just 82 tonnes in May, down 49 tonnes month-over-month and 30 tonnes year-over-year. “The elevated gold price dampened consumer interest in gold jewelry, leading to weaker-than-expected sales during the five-day International Labour Day Holiday in early May — a traditional demand boost — and this trend continued for the rest of the month,” Jia explained in the report.
Despite strong inflows into China’s gold exchange-traded funds, the physical market — which accounts for the bulk of consumption — sagged. The decline in China's appetite for gold bars and jewelry has been a primary driver of the price retreat from May's record high. While gold has gained 1.5% this week and remains up 14.4% over the past 90 days, the momentum has clearly stalled.
Federal Reserve’s Stance Adds Pressure
Financial analyst Saqib Iqbal from Trading.biz provided a bearish short-term outlook in a note to Bitcoin.com News. “I think gold prices will come down given the Fed maintains its cautious approach,” Iqbal said. “Last night we saw Jerome Powell articulately not giving any hints on a rate cut. I see gold prices ranging from $2,250 to $2,300 in the coming month.” He added that only if the U.S. releases consistently softer CPI reports and the unemployment rate edges higher, allowing the Fed to cut rates in September, could gold break above $2,400.
The Federal Reserve’s reluctance to commit to rate cuts has kept the opportunity cost of holding gold elevated. Combined with weak physical demand from China — the world’s largest gold consumer — the metal faces a discouraging near-term landscape. Historically, the summer months are a seasonal lull for gold, and with geopolitical risk premiums fading, the market appears to be in a wait-and-see mode.
Outlook: A Summer of Reassessment
Gold markets are entering a period of reevaluation. Investors will closely watch whether China’s physical demand recovers as prices correct lower. Meanwhile, U.S. inflation data and labor market reports will dictate the timeline for any Fed pivot. Analysts generally expect gold to trade in a range-bound fashion through the summer, with the $2,250-$2,300 zone serving as key support. Any upside catalyst would likely need to come from a clear shift in Fed rhetoric or a new wave of geopolitical turmoil.
In summary, gold's retreat from its May peak reflects a confluence of factors—waning Chinese physical demand and a cautious Federal Reserve. Until either side provides a fresh impetus, the metal may struggle to reclaim its former highs.