Gold Caught Between Record Central Bank Purchases and a Fed Poised to Hike Further

Gold holds near $4,500 as Fed hawkish minutes push yields higher, but central bank buying and retail demand surge counterbalance. Iran talks add uncertainty.

Gold is locked in a battle of tectonic forces. On one side, a Federal Reserve majority ready to raise interest rates further is sapping the metal’s appeal. On the other, a relentless buying spree by central banks and a surge in retail demand are building a floor that has kept bullion above $4,500 even as geopolitical risk premiums ebb.

After slipping to $4,499 an ounce on Wednesday — a $35 drop from the prior session and roughly 16% below the all-time high of $5,589 set in January — gold rebounded modestly. Spot prices were hovering at $4,543.96 on Thursday, with June futures adding 0.2%. The recovery reflects a market still uncertain which force will prevail.

The Fed’s hawkish overhang

The headwind is clear. Minutes from the Federal Open Market Committee’s April meeting showed a majority of policymakers are prepared to raise the federal funds rate further if inflation remains stubbornly elevated. The FedWatch tool now puts the probability of higher rates by December 2026 at above 50%. That prospect has hammered the opportunity cost of holding non-yielding gold. Real yields on intermediate-term Treasuries climbed 26 basis points this week, while the dollar firmed — both classic drags on bullion.

The mechanism is playing out unusually for a period of armed conflict. Rather than rallying as a safe haven, gold is suffering the knock-on effects of the US-Iran confrontation. Soaring oil prices stemming from the Strait of Hormuz blockade have reignited inflation expectations, crushed hopes for near-term rate cuts, and strengthened the greenback. Until the Fed signals a pivot, that constellation remains a formidable barrier.

Central banks and retail buyers build a counterweight

Yet the demand side of the ledger tells a strikingly different story. Central banks added an estimated 244 tonnes net in the first quarter, well above the five-year average. Bar and coin demand surged 42% to 474 tonnes — the second-highest quarterly tally on record. That physical offtake is absorbing the selling pressure from institutional portfolios and ETF outflows.

The SPDR Gold Trust, a bellwether for institutional appetite, saw its holdings slip 0.2% to 1,041.74 tonnes. That is a drip, not a flood, but it underscores the caution among fund managers who are waiting for clearer direction from the Fed and the Iran talks.

Hormuz diplomacy offers a two-edged sword

The diplomatic track remains the wild card. US President Donald Trump described the negotiations as being in “final phases” and a test passage of three supertankers through the Strait of Hormuz has offered a glimmer of détente. However, the picture is fragile: Trump has threatened military strikes if talks collapse, while Iran has warned of a regional war.

For gold, a successful deal that opens the waterway would be a double-edged blessing in the short term, but a clear positive in the longer run. Lower oil prices would cool inflation expectations, revive bets on Fed easing, and weaken the dollar — all factors that structurally favour bullion. Until then, the metal is caught between the drag of real yields and the gravitational pull of central bank buying.

Forecasts still point higher

Despite the tactical weakness, several major houses maintain ambitious year-end targets of $5,400 to $6,000, anchored on geopolitical uncertainty and the unbroken buying streak of monetary authorities. J.P. Morgan has trimmed its average annual forecast to $5,243 but expects prices to recover as 2026 progresses.

Gold is now testing the resolve of both its optimists and its skeptics. With the Fed minutes reinforcing a rate-hike bias and the Iran talks hanging in the balance, the $4,500 level represents a key battleground where structural demand meets cyclical headwind. A decisive break in either direction will depend on which of these forces gives way first.