Gold’s $4,600 Comeback: A Fractured Fed, Record Demand, and a Hormuz Blockade

Gold climbs back above $4,600 as disappointing US growth data and a softer dollar offset Fed divisions, while record Q1 demand hits $193 billion.

Gold staged a sharp reversal on Thursday, climbing back to $4,626 an ounce after three straight days of losses, as a weaker dollar and disappointing US growth data overshadowed deepening divisions within the Federal Reserve. The metal had sunk to a monthly low of $4,557 on Wednesday after the central bank held rates steady at 3.50-3.75% but revealed an unusually fractured policy committee — four dissenting votes in the FOMC, a tally that rattled markets and sent bond yields and the dollar higher.

The latest leg of the recovery was triggered by a miss on US GDP. The economy expanded at an annualized rate of just 2.0% in the first quarter, undershooting expectations and pushing the dollar index into negative territory. That gave gold a fresh bid, though the metal remains roughly 15% below its January all-time high of $5,450.

Record-Breaking Demand in the Rearview Mirror

The World Gold Council’s latest quarterly report, released Thursday, underscores just how extraordinary the demand backdrop has been. Total gold demand hit 1,231 tonnes in the first quarter, up 2% year-on-year. But the headline figure masks a far more dramatic story: with the average gold price hovering near $4,873 an ounce during the period, the aggregate value of demand surged 74% to a record $193 billion.

Physical investment was the standout. Bar and coin demand reached 474 tonnes — the second-highest quarterly tally ever — led by a stunning 67% surge in China to 207 tonnes, eclipsing the previous record set in 2013. Central banks added a net 244 tonnes, up 3% from a year earlier, with the People’s Bank of China reporting a fresh all-time high in official reserves at roughly 2,309 tonnes.

The price shock is reshaping consumption patterns. Jewellery volumes cratered 23% as buyers balked at the elevated price tag, though total spending on jewellery still climbed 31%, reflecting a willingness to pay more for less. Gold ETF inflows slowed sharply to 62 tonnes from 230 tonnes in the same quarter last year, with significant outflows from US-based funds in March weighing on the total. Technology demand eked out a modest gain to 82 tonnes, supported by AI infrastructure buildout.

The Iran Factor and the Inflation Bind

Geopolitical risk remains a dominant driver. The Strait of Hormuz is now largely blocked, keeping Brent crude above $110 a barrel — the highest since the conflict began. President Trump has reiterated that the naval blockade against Iran will remain in place until a nuclear agreement is reached. The energy shock is feeding through to inflation: eurozone CPI already stands at 3.0%, well above the ECB’s target.

That creates a peculiar tension for gold. Higher inflation is structurally supportive, but the prospect of tighter monetary policy to combat it is a headwind. Traders are now pricing in a more than 10% probability of a Fed rate hike by year-end, and some FOMC members have already voted against further loosening. Higher rates diminish the appeal of a non-yielding asset like gold.

Central Bank Decisions and the Path Ahead

All eyes are now on the European Central Bank and the Bank of England, both of which are set to announce their rate decisions later Thursday. No change in policy is expected, but the tone of the accompanying commentary on inflation risks will be critical. The US PCE price index — the Fed’s preferred inflation gauge — is also due.

The World Gold Council sees geopolitical risks as the dominant theme for the remainder of the year, with investment and central bank demand likely to remain robust while jewellery demand stays under pressure. How long the energy price shock persists — and how aggressively the Fed pushes back — will ultimately determine whether the current recovery has legs or is merely a pause in a longer correction.