Gold Caught in a Policy Vacuum as Oil Shock Reshapes the Inflation Calculus

Gold edges up on Iran-US talks but faces steep headwinds from a Strait of Hormuz blockade, surging oil prices, and a Federal Reserve leadership vacuum.

The gold market is navigating a rare convergence of forces this week: a leadership vacuum at the Federal Reserve, a blockade in the Strait of Hormuz that is sending energy prices into orbit, and a diplomatic push in Islamabad that briefly lifted the metal before structural headwinds reasserted themselves.

Spot gold edged up nearly one percent on Friday to $4,744.80 an ounce, paring what remains a weekly loss of more than two percent. The short-lived relief came as Iranian Foreign Minister Abbas Araghchi met with a US delegation in Pakistan, including special envoys Steve Witkoff and Jared Kushner, with Pakistani officials hinting at a possible breakthrough. But the geopolitical détente did little to mask the deeper pressures building beneath the surface.

Oil Shock Rewrites the Rate Outlook

The blockade of the Strait of Hormuz has become the dominant force shaping gold's near-term trajectory. Brent crude surged more than 17 percent over the week, breaching $105 a barrel. Tehran is reported to have fired on commercial vessels again this week, while the US maintains its own blockade of Iranian ports. The standoff shows no signs of easing.

Higher energy costs are feeding directly into inflation expectations. The University of Michigan's preliminary April survey showed inflation expectations jumping to 4.8 percent — a full percentage point higher than March and the sharpest monthly increase in a year. That shift has upended the interest-rate calculus. The yield on the 10-year US Treasury note climbed above the psychologically important two-percent threshold, while the dollar strengthened — both classic headwinds for a non-yielding asset like gold.

Since the Hormuz conflict escalated, gold has shed roughly 10 percent from its levels. The metal currently trades around $4,723, some 13 percent below the 52-week high of $5,450 set in late January. Yet on a year-to-date basis, it still holds a gain of about nine percent.

The Fed in Limbo

The Federal Reserve's leadership transition adds another layer of uncertainty. The April 28-29 FOMC meeting will be Jerome Powell's last as chair. Kevin Warsh is scheduled to take over on May 15, but Senator Thom Tillis is blocking the nomination in committee until the Justice Department drops a criminal investigation into Powell. The Senate is on recess the week of May 4, meaning a confirmation vote could come no earlier than May 11 — just four days before Powell's term expires.

For gold, this institutional vacuum creates a peculiar dynamic. Real yields are harder to price when the institution setting them is itself in limbo. A rate change at the April 29 meeting is effectively off the table — the CME FedWatch Tool puts the probability of no move at 99.5 percent. The market's focus is on the forward guidance. If Powell signals openness to rate cuts should oil prices retreat, gold could find support. If the language remains cautious, upside potential will stay capped.

Goldman Sachs is sticking with its bullish year-end target of $5,400, banking on continued central bank buying and the assumption that the Fed will ultimately ease. But the oil shock has opened the door to a more hawkish scenario: under a Warsh-led Fed in 2026, some market participants now see a rate hike as plausible if the energy price surge seeps into core inflation.

Central Banks Play Both Sides

Away from the daily noise, institutional demand continues to provide a floor. Poland bought 20 tonnes of gold in February, signaling deepening unease about geopolitical stability. Global central banks added a net 27 tonnes to their reserves in February. But the buying is not universal — Russia and Turkey used the elevated price environment to trim their holdings slightly.

January's central bank purchases came in at just five tonnes, well below the 2025 monthly average of 27 tonnes. Yet the geographic base broadened: Malaysia and South Korea resumed gold buying after long pauses, China continued to build its reserves, and Uzbekistan was the largest single buyer, according to the World Gold Council. Russia, meanwhile, sold nine tonnes.

The net effect is a market with two distinct layers. On the surface, short-term traders are reacting to oil prices, inflation data, and Fed signals. Beneath that, sovereign buyers are accumulating gold as a hedge against a world where the Strait of Hormuz remains contested and the leadership of the world's most powerful central bank hangs in the balance.

A credible reopening of the strait would lower oil prices, cool inflation expectations, and remove the biggest lid on gold's upside. Until that happens, the metal remains trapped in its current range — supported by structural demand but capped by the very energy crisis that is reshaping the global rate outlook.