Gold in a Two-Front Battle: Hormuz Diplomacy Meets Hawkish Dot Plot as Sovereign Buyers Pile In

Gold faces headwinds from Fed's hawkish stance but gets support from potential Hormuz reopening and record central bank purchases. Citi raises target to $4,500.

The geopolitical winds are shifting for gold, but the road to higher prices is hardly a straight line. A potential reopening of the Strait of Hormuz threatens to dismantle the energy-driven inflation narrative that has kept the Federal Reserve on edge, even as the central bank’s latest projections point to a more restrictive stance for longer. Caught in the middle, bullion is finding support from an unlikely corner: a historic buying spree by the world’s central banks.

Fed’s Hawkish Surprise Tightens the Screws

The Federal Reserve left its benchmark rate unchanged at 3.50-3.75 percent, but the real shock came from the dot plot. The median projection for the federal funds rate at the end of 2026 jumped to 3.8 percent, up from 3.4 percent in March. Half of the Federal Open Market Committee now see rates above the 3.75-percent threshold. The culprit is sticky inflation: the core PCE forecast for next year climbed to 3.3 percent, a full 1.3 percentage points above the central bank’s target.

Market pricing has followed suit. Fed funds futures now assign a 77-percent probability of a rate hike by December 2026, a sharp leap from only 24 percent a month ago. For a non-yielding asset like gold, rising real rates are a classic headwind—higher opportunity costs make the metal less attractive relative to interest-bearing alternatives.

Hormuz Truce Could Rewrite the Inflation Story

Yet Citi sees a different path. The bank lifted its three-month price target to $4,500, a sharp reversal from the $4,000 target it set just a few weeks ago in June. Its six-to-twelve-month view of $5,000 remains intact. The logic hinges on the Hormuz blockade. After US-Israeli strikes in February, Iran shut the strait, sending energy prices and inflation expectations surging. That added roughly 18 percent to gold’s valuation from its February high before the metal began to deflate.

Now, with the US and Iran set to sign a letter of intent this Friday to reopen the waterway, the energy price spike is already unwinding. West Texas Intermediate crude has slumped to a three-month low near $81 a barrel. The probability of a December rate hike has already fallen from around 70 percent to 57 percent. If the energy-driven inflation premium evaporates, the Fed’s hawkish justification weakens—and gold’s headwind turns into a tailwind.

Sovereign Buyers Set a Record in the Background

Separate from the interest-rate calculus, central banks are reloading their vaults at an unprecedented pace. A new survey from the World Gold Council shows nearly half of all surveyed monetary authorities plan to boost their gold holdings over the next twelve months—a historic high. Geopolitical unease has overtaken inflation as the top motivation, with institutions seeking a reliable hedge against global instability.

In the first quarter alone, reported net purchases totaled 244 tonnes. Poland led the buying spree in April, adding 14 tonnes, while China extended its buying streak to 18 consecutive months with an additional 8 tonnes. Turkey was a notable seller, offloading 60 tonnes in March. Including unreported purchases, the true net figure for Q1 may be significantly higher than the 16 tonnes that were formally declared to the IMF.

Price Action Hinges on Two Divergent Paths

Gold traded near $4,386 this week, a weekly gain of roughly 7 percent, before settling around $4,378—up 3.47 percent over the past seven days. The metal remains 22 percent below its 52-week high of $5,626.80 set in January, and its relative strength index sits at a neutral 46, indicating no clear directional bias. Technically, the 50-day moving average at $4,578.41 looms as key resistance.

The outcome now narrows to two scenarios. If the Hormuz agreement holds and oil prices normalize, the inflation premium that forced the Fed into a hawkish corner will fade. Citi’s $5,000 target would then gain plausibility. But if the pact unravels or energy costs stay elevated, the hawkish dot plot will remain the dominant force, keeping the yellow metal pinned below recent highs.