Gold’s Dual Pressures: Oil-Fed Rate Jitters vs. Unrelenting Central Bank Demand

Gold falls 2.7% weekly to $4,064 despite record central bank hoarding; oil spike from Middle East tensions raises Fed tightening odds, pressuring the non-yielding metal.

Central banks have been hoarding gold at a near-record pace, but the metal continues to slide — a paradox that sums up the current market stalemate. While the People’s Bank of China extended its buying streak to 20 consecutive months in June with a hefty 480,000-ounce addition, prices have fallen back below $4,100 an ounce, dragged down by a sharp rise in oil prices and the resulting implications for Federal Reserve policy.

The latest breakdown took gold to $4,063.80 a troy ounce, a 1.55% decline on the day and a weekly drop of 2.70%. That puts the metal 4.15% lower on a monthly basis and 6.40% into the red for the year so far. From January’s record high of $5,626.80, gold has lost 27.78%. The distance to the 52-week low of $3,901.30 from October has now shrunk to just 4.17%.

The Oil–Inflation–Fed Chain

The immediate trigger for the sell-off is geopolitical: US forces struck Iranian targets for the fourth time in a week after an attack on a Cyprus-flagged container ship, prompting Tehran to declare the Strait of Hormuz closed “until further notice.” The US Central Command disputes that claim, but the uncertainty has sent crude oil surging more than 9% in five trading days.

Higher oil prices feed directly into inflation expectations, raising the odds that the Federal Reserve will need to tighten further. Markets already price a nearly 60% chance of a rate hike in September, and the minutes of the Fed’s June meeting revealed that several policymakers favoured raising rates even before the latest spike in energy costs. With gold offering no yield, higher interest rates sharply reduce its appeal.

This week brings two key events that could sharpen or soften those rate expectations. On Tuesday, Fed Chairman Kevin Warsh faces Congress for the first time, and his remarks on the outlook for monetary policy will be scrutinised. Later in the week, US inflation data will provide the latest read on price pressures. Together, they could reset the rate-hike calculus — and with it, gold’s near-term direction.

Technicals Confirm the Weakness

The charts do little to inspire confidence. Gold now trades 6.71% below its 50-day moving average of $4,356.11 and 10.48% below the 200-day average of $4,539.41. The relative strength index sits at 40 — a level that points to selling momentum, not oversold conditions. The secondary article noted an RSI of 44, but both agree the gauge is flashing weak, not distressed.

The decline has also widened the gap to the record high, but the proximity to the 52-week low means a further break below $3,900 could accelerate selling. For now, the metal remains in a well-defined downtrend.

Central Banks Dig In

Yet underneath the surface, structural demand is building. Central banks bought 244 tonnes net in the first quarter, above the five-year average, and the buying pace has continued into the second quarter. Poland remains the most active buyer globally, followed by Uzbekistan with 16.5 tonnes and Kazakhstan with 6.5 tonnes in recent months. Czechia has added 3.4 tonnes so far this year.

A World Gold Council survey of 74 central banks found that 45% plan to increase their gold reserves in the next twelve months — the highest share since the survey began in 2018. Only one central bank intends to reduce holdings. The motivations are clear: geopolitical uncertainty, diversification away from the US dollar, and a gradual de-dollarisation trend. Roughly three-quarters of respondents expect the dollar’s share of global reserves to decline further.

A Market of Two Stories

The tension between these forces — official-sector buying on one side and rate-induced selling on the other — has created a market that moves in fits and starts. Regional demand also diverges: India has seen price-sensitive weakness due to volatility, while Chinese demand remains steady.

The geopolitical picture adds an extra layer. Despite the latest escalation, reports suggest US-Iran talks are still scheduled to continue, leaving open the possibility of de-escalation. If tensions ease, oil prices could retreat, dampening inflation fears and removing the main headwind for gold. Conversely, a prolonged standoff over the Strait of Hormuz would keep the oil-gold feedback loop in place.

For the moment, the forces that are pushing gold lower — higher rates, a strong dollar, and oil-driven inflation bets — are overwhelming the steady accumulation from central banks. The stalemate is likely to persist until one side decisively breaks.