The Strait of Hormuz is shut again, and the Middle East is simmering. Historically, that combination sends investors rushing for safe havens. But gold is doing the opposite, sliding toward $4,100 per ounce as the same geopolitical turmoil fans the inflation expectations that keep the Federal Reserve locked in a hawkish stance.
The paradox is brutal. A closure of the world’s most important oil chokepoint pushes crude higher, and higher oil feeds into broader price pressures. For an asset that offers no yield, the prospect of rates staying elevated – or even rising – is toxic. Gold briefly fell to around $4,150 after the Fed’s latest meeting before recovering to $4,206, but the metal remains under severe pressure. It has lost nearly 7% over the past month and sits far below its all-time high of roughly $5,598.
Warsh’s Hawkish Premiere
The Federal Reserve left its benchmark rate unchanged at 3.50–3.75% at its last meeting, but the accompanying projections were anything but dovish. Nine policymakers now see at least one rate increase during 2026. Chair Kevin Warsh, in his first major test, declined to place his own projections in the dot plot and instead set up working groups to review internal procedures.
Bond markets reacted instantly. The yield on two-year US Treasuries surged to 4.21% – the largest single-day jump on a Fed decision day since March 2008. The dollar climbed to its strongest in more than a year, compounding the headwind for gold.
Central Banks Keep Buying
Despite the price rout, the demand picture from official institutions remains robust. The World Gold Council reported that central banks turned net buyers again in April, adding 19 tonnes to their reserves. A survey showed that nearly 45% of all global central banks plan to increase their gold holdings over the next year. China has been buying consecutively for a year and a half.
Should investors sell immediately? Or is it worth buying Gold?
This long-term support creates a stark split: near-term macro forces are overwhelming the structural bid from sovereign buyers. The market is being pulled in two directions at once.
Diverging House Views
The big banks are unusually far apart on where gold goes next. Goldman Sachs slashed its year-end target by $500 to $4,900 an ounce, warning that a real rate hike could push prices to $4,400 by December. Its analysts describe the outlook as “structurally constructive but tactically cautious”. J.P. Morgan, by contrast, maintains a far more bullish forecast of $6,000 to $6,300. Seldom have the top houses been so polarised.
The Next Catalyst
All eyes now turn to the US Personal Consumption Expenditures (PCE) price index – the Fed’s preferred inflation gauge. The central bank’s latest projections see core PCE ending the year at 3.3%. The next reading is due on 25 June. If it comes in hot, bond yields and the dollar are likely to strengthen further, cementing the downward pressure on gold.
Gold is caught in a vicious circle: the very geopolitical turmoil that should buoy it is instead feeding the rate fears that are sinking it. Until either the Fed pivots or a diplomatic breakthrough at the Bürgenstock talks calms energy markets, the metal will struggle to find its footing.
Ad
Gold Stock: Buy or Sell?! New Gold Analysis from June 22 delivers the answer:
The latest Gold figures speak for themselves: Urgent action needed for Gold investors. Is it worth buying or should you sell? Find out what to do now in the current free analysis from June 22.
Gold: Buy or sell? Read more here...
