Gold prices experienced a notable decline of 2.9%, closing at Rs 148,017, as renewed risk-off sentiment emerged in response to escalating tensions in the Middle East. Recent exchanges of strikes between the United States and Iran have diminished prospects for a diplomatic resolution, heightening concerns regarding elevated energy prices, inflationary pressures, and the potential for additional monetary tightening. US headline inflation accelerated to 4.2% in May, marking the highest level since April 2023, while core inflation increased to a seven-month high of 2.9%.

This development reinforces expectations that the Federal Reserve may maintain elevated interest rates for an extended period. Market participants are currently assigning a 70% probability to a quarter-point rate hike in December. On the demand front, China’s central bank has maintained its strategy of gold accumulation, raising reserves for the 19th consecutive month to 74.96 million fine troy ounces. However, physical demand remained subdued across key Asian markets. In India, purchasers remained inactive amid fluctuating global prices, while physically backed gold ETFs experienced their inaugural monthly outflow in a year during May as investors realised profits.

In China, premiums have experienced a modest decline, indicative of weakened demand conditions. Globally, sentiment towards gold ETFs has diminished, evidenced by net outflows amounting to $2 billion in May, primarily driven by Asia and North America. Nevertheless, year-to-date inflows continue to show a positive trend, totalling nearly $17 billion. Meanwhile, gold stored in London vaults experienced a slight uptick, reaching 9,392 tonnes by the end of May.

Technically, the market is experiencing renewed selling pressure, as open interest has increased by 4.21% to 9,358 lots while prices have fallen, suggesting the establishment of new short positions. Gold encounters immediate support at Rs 146,995, with a breach below this level likely to exacerbate losses toward Rs 145,970. On the upside, resistance is observed at Rs 149,950, and a sustained move above this level could initiate further recovery toward Rs 151,880.