Gold Rebounds After Trump Calls Off Iran Strikes, but Central Bank Buying and Fed Hawks Wage a Tug-of-War

Gold recovers to $4,172 after Trump cancels Iran strikes. Central bank demand offsets Fed rate hikes; technical oversold signals rally.

Gold staged a sharp intraday recovery on Thursday, climbing back to $4,172.50 an ounce after US President Donald Trump announced on Truth Social that planned strikes against Iran had been cancelled, citing "advanced negotiations" and a peaceful resolution in sight. The turnaround came just one day after the precious metal had slumped to a six-month low of $4,024, battered by a potent mix of rising interest rates, sticky inflation, and a soaring dollar.

The sell-off that preceded the rebound was fuelled by a twin shock from monetary policy and data. The European Central Bank raised its deposit rate to 2.25% on Thursday — the first hike in three years — while US producer prices soared 6.5% in May and consumer prices rose 4.2%. Meanwhile, the closure of the Strait of Hormuz disrupted global energy flows, fanning inflation fears and pushing the dollar higher, which made gold more expensive for buyers outside the dollar bloc. Against this headwind, the metal notched a monthly decline of roughly 11% to 13% depending on the reference point, and now sits more than 26% below its January all-time high.

Yet beneath the surface of the price chart, a structural shift in demand is providing a floor. The World Gold Council reported record first-quarter demand of 1,231 tonnes globally, with bar investment alone hitting nearly 398 tonnes. Central banks added a net 244 tonnes in the first quarter, led by Poland’s National Bank, which lifted its reserves to 595 tonnes in April, and China’s central bank, which bought another eight tonnes in the same month to push its total above 2,300 tonnes as it seeks to reduce dollar reliance. In China and India, retail investors snapped up the dip, with bar and coin demand rising 28% and 17% respectively.

The flip side is that jewelry consumption collapsed to 335 tonnes in the first quarter, as high prices and economic uncertainty kept buyers in China and the Middle East on the sidelines. For the first time, bars and coins are expected to overtake jewelry as the largest demand category this year, underscoring a fundamental change in who buys gold and why.

That physical support is, however, locked in a tug-of-war with the Federal Reserve’s unwavering hawkishness. The US added 172,000 jobs in May, and markets now price a 70% probability of another rate hike by December. Rising bond yields continue to sap the appeal of non-yielding bullion. Technically, the metal is deeply oversold: the relative-strength index stands at an extreme 23.8, and past readings at such levels have often triggered counter-trend rallies. The immediate battleground is the $4,170 support zone; a break below that would expose the 52-week low at $3,901.

Goldman Sachs strategists, for their part, maintain a bullish long-term view, reiterating a year-end target of $5,400, underpinned by robust demand from emerging markets and central bank hoarding. For now, the market’s direction hinges on whether physical buyers can continue to absorb the selling pressure generated by a Fed that shows no sign of letting up.