Gold’s Conflicting Signals: Reserve Record Scored as Oil and Fed Fears Cap Bullion

Gold's share of global reserves hits historic 27%, surpassing Treasuries and euro, but spot price slides 13% amid oil-driven inflation fears and rising Fed rate hike expectations.

The yellow metal is living a dual existence. On one side, central banks are hoarding it at a pace that has pushed gold’s share of global official reserves to a historic 27 percent, eclipsing US Treasuries and the euro for the first time. On the other, the spot price is mired in a four-day losing streak, battered by oil-driven inflation fears and hawkish expectations from the Federal Reserve. The contradiction encapsulates a market caught between structural demand shifts and punishing macro headwinds.

The European Central Bank’s latest report underscores the scale of the reserve realignment. As of end-2025, gold accounted for over a quarter of total central bank reserves worldwide, outstripping both US government bonds and the single currency. The surge, however, owes much to the precious metal’s spectacular rally in prior years. When adjusted to end-2023 prices, Treasuries still command a 26 percent share, ahead of gold’s 27 percent on a mark-to-market basis. Buyers have not been deterred by the recent pullback. The World Gold Council reported net central bank purchases of 17 tonnes in April, reversing March’s net sales. Poland led the charge with 14 tonnes, boosting its gold holdings to nearly one-third of national reserves. China’s People’s Bank extended its 18-month buying streak with eight tonnes, while Russia trimmed its stockpile modestly on the sell side.

The strong institutional demand contrasts starkly with the metal’s near-term price action. On Thursday, spot gold was trading at $4,449.9 per troy ounce according to Kitco, down $37.2 from the previous session. That marks the fourth consecutive daily decline and a drop of roughly 13 percent since the Iran conflict flared up in late February. Over the same period, crude oil has surged more than 50 percent, creating a punishing feedback loop: Iranian missile strikes damaged Kuwait’s airport, US forces operate near the Strait of Hormuz, and diplomacy has stalled. Rising energy costs feed inflation, which in turn ties the Fed’s hands on rate cuts, dimming the appeal of the non-yielding asset.

Fresh labour-market data have only tightened the squeeze. Private employers added 122,000 jobs in May, well above the 110,000 forecast and the strongest month for payroll growth in 16 months. The JOLTS job openings report also pointed to a resilient jobs market. According to the CME FedWatch Tool, markets now price in a nearly 42 percent probability of a rate hike by the December meeting, while rate cuts have been pushed far into the future. All eyes are on Friday’s nonfarm payrolls, where economists expect 85,000 new positions and an unemployment rate of 4.3 percent. A strong outcome would further amplify rate expectations ahead of the Federal Open Market Committee’s first meeting under new chair Kevin Warsh on June 16–17. The tone of that meeting is seen as pivotal.

Banks are adjusting their gold price forecasts accordingly. Commerzbank cut its end-2026 projection to $4,800 from $5,000, while maintaining its longer-term estimate of $5,200 for end-2027. Goldman Sachs remains more bullish, targeting $5,400 for end-2026, banking on continued central bank purchases and an eventual easing cycle from the Fed. Market observers view a credible ceasefire or an agreement to reopen the Strait of Hormuz as a potential turning point that would relieve oil-induced inflation pressure, give the Fed room to loosen policy, and weaken the dollar—all factors that would structurally favour gold.

Asian retail investors are stepping in where Western funds are stepping back. The first quarter saw a dramatic shift in physical demand: global bar and coin purchases hit 474 tonnes, a 42 percent surge year-on-year, even as jewellery consumption collapsed by nearly a quarter. China alone accounted for 207 tonnes of investment gold, the highest quarterly figure since 2013. India’s appetite rose by over a third to 62 tonnes. Asian gold ETFs posted massive inflows, while North American funds continued to bleed capital. This grassroots demand, combined with the relentless accumulation by central banks, provides a solid floor—but until oil and rate fears recede, that floor remains under heavy strain.