Gold Caught in a Policy Crossfire as Fed Divisions and Oil Shock Rattle Markets

Gold drops to $4,566 as fractured Fed vote and surging oil prices offset central bank buying and record physical demand.

The Federal Reserve’s decision to hold rates steady on Wednesday was overshadowed by a level of internal dissent not seen in over three decades — and for gold, the fallout is proving more consequential than the pause itself.

The central bank left its benchmark rate unchanged at 3.50% to 3.75%, marking the third hold this year. But the 8-to-4 vote was the most fractured since October 1992, with three members pushing back against dovish language and one calling for immediate cuts. The lack of a unified message has left markets guessing — and that uncertainty has done little to lift gold out of its recent slump.

Fed Chair Jerome Powell, who plans to remain on the board after his term officially ends in mid-May, struck a cautious tone in his press conference. He warned that energy prices have not yet peaked and will keep inflation elevated in the near term, underscoring the risk of higher core inflation. While no committee members are currently advocating for rate hikes, Powell made clear that a near-term easing is equally off the table.

The market response was swift. Yields climbed, the dollar firmed, and gold — which offers no yield — felt the squeeze. The precious metal closed at $4,566 per ounce, roughly 16% below its 52-week high of $5,450.

The Oil Wildcard

Compounding the pressure is a structural shock in energy markets. The closure of the Strait of Hormuz has disrupted roughly 20% of global oil flows, with the International Energy Agency calling it the largest supply disruption in history. Reuters reported a nearly 3% jump in oil prices as peace talks with Iran stalled, with President Trump expressing dissatisfaction with Tehran’s latest proposal.

Brent crude has now surpassed $119 a barrel — about 50% higher than before the Iran conflict erupted. The Fed responded by raising its inflation forecast to 2.7%. The transmission mechanism is straightforward: higher oil feeds inflation expectations, a patient Fed keeps real yields elevated, and gold suffers — even as geopolitical tensions would normally support the metal.

Physical Demand Offers a Floor

On the demand side, the picture is more supportive. Central banks added a net 244 tonnes of gold in the first quarter, a 3% increase year-on-year, according to the World Gold Council. Total global gold demand reached 1,231 tonnes, with the dollar value hitting a record $193 billion.

Gold ETFs, however, drew only 62 tonnes in the quarter, with US funds posting net outflows in March. The divergence highlights a market where institutional and sovereign buyers remain active, but speculative and retail interest has cooled.

In a notable shift, India’s investment demand for bars and coins surpassed jewelry consumption for the first time — a sign that gold is increasingly viewed as a capital asset rather than adornment.

Miners Reap the Rewards

The high price environment is flowing through to producers. Kinross Gold reported a 61% revenue surge to $2.40 billion in the first quarter, with adjusted earnings per share doubling to $0.71. B2Gold posted a record $3.1 billion in revenue for its fiscal year.

What’s Next

The near-term direction for gold hinges on two data releases: the first Q1 GDP print and the core PCE price index for March. A hotter-than-expected PCE reading would reinforce the Fed’s hawkish stance and pile more pressure on the metal.

Adding to the policy uncertainty, the Senate Banking Committee has approved Kevin Warsh’s nomination as Fed chair, with a handover expected in mid-May. Powell criticized government attacks on the central bank’s independence during his final press conference, signaling that the transition may not be smooth.

Silver and platinum also gained ground on Thursday. The European Central Bank’s upcoming rate decision could provide the next catalyst for precious metals, as traders look for signals on global monetary policy direction.

Structurally, the case for gold remains intact: central bank buying of roughly 1,000 tonnes annually, US fiscal deficits running at 6% to 7% of GDP, and ongoing reserve diversification away from the dollar. But in the short term, the metal is caught between a divided Fed, a soaring dollar, and an oil shock that keeps inflation expectations elevated — a combination that has pushed it 16% below its peak and left traders wondering when the headwinds will ease.