Why Gold Got Costlier In India Even As Global Prices Fell In May

Gold prices in India bucked the global trend in May 2026 even as international gold prices declined during the month, according to the World Gold Council's (WGC) latest Gold Market Commentary report.

Globally, gold fell 1.40 per cent in dollar terms in May, ending the month at $4,546 per ounce. Prices were also lower across most major currencies. However, India emerged as one of the few exceptions, where local gold prices posted gains. Japan and Turkey were the only other major markets to record positive returns during the month, though their gains were limited to 0.2 per cent each.

According to the report, gold in India delivered a return of 4.10 per cent in May, taking its gains for the year so far to 17.60 per cent as of May 29. Domestic gold prices stood at Rs 1,55,964 per 10 grams at the end of the month, the data showed.

India's Demand May Continue To Support Gold

The WGC said demand from large physical gold-consuming markets such as India and China, along with sustained central bank purchases, could help support gold prices even if expectations of US monetary tightening strengthen further.

"Demand from China, India and central banks is structurally less sensitive to US rates and could provide support beyond the current lull," the report noted.

The commentary comes at a time when market expectations have shifted sharply. After anticipating further rate cuts from the US Federal Reserve, investors are now increasingly pricing in the possibility of rate hikes later this year amid persistent inflation pressures.

"Following a somewhat contentious US rate-cutting cycle that began in 2024, the market has pivoted to the strong possibility of rate hikes into year-end and beyond, with a firm economy facing pass-through inflation pressures," the report said.

Fed Rate Hikes Not Necessarily Bad For Gold

Contrary to conventional market wisdom, the WGC argued that a future Fed rate hike may not automatically hurt gold prices.

"It is our view that a hike may counter intuitively benefit gold when it happens," the report said, adding that historical data shows gold has "positively surprised on hikes more than 50 per cent of the time." The council noted that the metal's median one-month return following Fed rate increases has remained positive after adjusting for long-term averages.

According to the WGC, markets may increasingly interpret future rate hikes as signs of economic fragility, fiscal stress and policy risks rather than indicators of economic strength, creating a supportive backdrop for gold.

What Factors Could Dim Gold’s Shine In Near Term

The WGC sees a constructive longer-term outlook, but it also listed out several challenges for gold in the near term.

"Some physical markets appear to have softened, with discounts in India, South Korea and anecdotal evidence of some selling in Japan," the report said. It also cited subdued global inflows into gold exchange-traded funds (ETFs) during May as a sign of weakening investment demand.

India's gold ETFs saw net outflows of $61 million in May, ending a 12-month streak of inflows, as investors booked profits after domestic gold prices rose following the government's import duty hike.

The WGC further warned that developments in energy markets could pose the biggest short-term risk. "The largest near-term risk may come from energy markets," the report said, noting that a sharp rise in oil prices could push bond yields higher, strengthen the US dollar and weigh on gold before longer-term supportive factors reassert themselves.

Since the US-Iran war started in late February, international oil benchmark Brent crude oil has swelled more than 30 per cent.