Gold’s Hormuz Paradox: Record Buying Can’t Break the $4,500 Ceiling

Despite Strait of Hormuz conflict and surging energy prices, gold falls 17% from peak as Fed rate-cut bets evaporate, while central bank and retail demand hits record highs.

The Strait of Hormuz is on fire, literally, yet gold is struggling to hold its ground. On Monday, Iranian forces struck multiple vessels in the waterway and set an oil terminal ablaze in the United Arab Emirates, coinciding with the launch of President Trump’s “Project Freedom” — a military mission deploying guided-missile destroyers, over 100 aircraft, unmanned platforms, and roughly 15,000 troops to escort neutral ships through the contested strait. Tehran branded the operation a violation of the April 8 ceasefire, escalating a conflict now entering its tenth week.

The geopolitical inferno has sent energy prices surging and inflation fears mounting. But gold, the traditional safe haven, is behaving anything but predictably. The yellow metal last traded at around $4,532 an ounce, down roughly 17 percent from its January peak and barely in positive territory for the year. On Monday alone, it shed 2.24 percent, touching $4,526 before a modest recovery.

The disconnect stems from a powerful counterforce: interest rates. According to the CME Group, nearly 95 percent of market participants now expect the Federal Reserve to hold rates steady in June. Traders have slashed their rate-cut bets for this year, with some even penciling in hikes from 2027 onward. A prolonged period of elevated borrowing costs raises the opportunity cost of holding a non-yielding asset like gold, particularly for Western institutional investors. The diplomatic undertow is also at play — Iran is reportedly reviewing a 14-point U.S. proposal, which, if successful, could defuse some of the immediate safe-haven demand.

Yet beneath the price surface, demand is roaring. Central banks added a net 244 tonnes of gold in the first quarter, surpassing both the previous quarter and the five-year average. The National Bank of Poland led the charge, boosting its reserves by 31 tonnes to 582 tonnes, while the People’s Bank of China lifted its holdings to 2,313 tonnes. The buyer base is also broadening: institutions from Guatemala, Indonesia, and Malaysia have re-entered the market after long periods of inactivity.

Retail investors are piling in too. Global bar and coin demand hit 474 tonnes in the first quarter — the second-highest quarterly figure on record and a 42 percent year-on-year surge. China alone posted a 67 percent jump in investment demand, reaching an all-time quarterly high of 207 tonnes. India, South Korea, and Japan also saw notable increases. The jewelry sector tells a different story: volumes collapsed by 23 percent as sky-high prices deterred buyers, though the value of sales held steady, suggesting underlying appetite remains intact.

Supply is struggling to keep pace. Mine production set a first-quarter record, but recycling grew only modestly at 5 percent despite elevated prices. The World Gold Council forecasts moderate output growth for 2026, though potential diesel shortages at mines in Oceania and Asia could cloud that outlook.

The result is a market caught between two forces: structural tightness from record demand and constrained supply, versus short-term headwinds from a hawkish Fed and a resilient dollar. The geopolitical risk premium remains the wild card. If U.S. escorts successfully move civilian ships through the Strait of Hormuz, oil prices could ease and relieve some of the inflationary pressure on gold. If the military mission falters, the blockade drags on — and so does gold’s frustrating consolidation just above $4,500.