Inflation-Driven Gold Demand Surges as CPI Runs at Double Fed Target

April CPI showed inflation at nearly double the Fed's 2% target, driven by energy spikes from the Iran conflict and supply chain dislocations. Gold ETF inflows reached $3.2B in May as investors rotated into the metal for inflation protection despite higher nominal rates.

The inflation dynamic is unusual: normally gold benefits from lower rates, but the current environment features rising expectations alongside a hawkish Fed. The CME FedWatch shows 37% probability of a rate hike before year-end. This creates a tug-of-war where physical demand supports dips but higher real yields cap rallies.

Bank of America revised its 12-month gold target to $6,000/oz, citing strong investment demand, geopolitical tensions, and US fiscal deficits. The structural bull case - central bank buying, de-dollarization, inflation - remains intact even if near-term action is range-bound in the $4,500-5,000 zone.