Gold prices ended 1.07% higher at Rs 150,528, recovering amid improving sentiment after crude oil prices declined on rising expectations of a potential peace agreement between the United States and Iran. Market sentiment was supported after U.S. President Donald Trump signalled that a peace deal could be finalized soon and cancelled planned military action against Iran. Despite the rebound, gains remained limited as investors continued to assess inflation risks and the possibility of further monetary tightening by the U.S. Federal Reserve.
U.S. producer prices rose more than expected in May, recording the strongest annual increase in three-and-a-half years, largely driven by higher energy costs linked to Middle East tensions. As a result, traders are currently pricing in a significant probability of a Fed rate hike later this year. Higher interest rate expectations continue to weigh on gold by increasing the opportunity cost of holding the non-yielding asset. Physical demand trends remained mixed across key consuming regions. In India, jewellery demand improved modestly as softer prices encouraged buying, although overall retail confidence remained cautious.
Indian physically backed gold ETFs recorded their first monthly net outflow in a year as investors booked profits following the recent price rally. In China, gold premiums eased as demand moderated, while other major Asian markets witnessed largely stable trading conditions. Meanwhile, gold holdings in London vaults increased slightly to 9,392 tonnes at the end of May. Global gold ETFs witnessed net outflows of $2 billion during May, led by withdrawals from Asia and North America, although year-to-date inflows remain firmly positive.
Technically, the market is witnessing short covering, with open interest declining by 4.12% while prices moved higher. Gold is finding immediate support at Rs 149,665, followed by Rs 148,805. Resistance is seen at Rs 151,220, and a sustained move above this level could extend gains towards Rs 151,915.