Gold’s Hormuz Trap: Record Central Bank Buying Can’t Shake the $4,500 Rut

Despite Iran tensions and surging oil, gold languishes at $4,532 amid strong dollar, rising yields, and ETF outflows, with central bank buying providing a floor.

The Strait of Hormuz is on fire, oil prices are surging, and geopolitical risk is flashing red — yet gold can barely hold $4,500. That disconnect tells you everything about what’s really driving the precious metals market right now.

Bullion closed Monday at $4,532 an ounce, down 2.24% on the day and roughly 17% below its January all-time high of $5,589. The metal has been stuck in a frustrating consolidation since late January, with March delivering the steepest monthly decline since 2013 — a brutal 12% wipeout fueled by a stronger dollar, rising Treasury yields, and heavy ETF outflows.

The irony is hard to miss. Iranian missiles struck the United Arab Emirates, Tehran tightened its grip on the Strait of Hormuz — through which 35% of global seaborne crude passes — and Brent crude jumped 5% in a single session to $113.76, its highest since May 2022. In normal times, that would be rocket fuel for gold. But these are not normal times.

The Fed Is the Real Anchor

The problem is that gold’s traditional safe-haven bid is being smothered by monetary policy. Rising real yields make a zero-yielding asset like bullion look expensive compared to bonds. A robust dollar adds another layer of pain for international buyers. And the market has all but given up on near-term rate cuts: the CME Group now prices the probability of a June rate reduction at roughly 5%.

“The geopolitical situation screams for safe havens, but Fed policy acts as a counterweight,” one strategist noted. Until rate cuts come back into view, gold lacks the catalyst it needs for a sustained breakout.

That doesn’t mean the structural story is broken. Far from it. Global gold ETFs attracted roughly $77 billion in inflows in 2025, with holdings expanding by over 700 tonnes. Institutional year-end 2026 targets range from $5,200 to $6,300 an ounce. The question isn’t whether gold will rally again — it’s when, and that timing depends almost entirely on the Fed.

Central Banks Are Buying Like Never Before

While retail and institutional investors have been selling, the world’s central banks have been buying with remarkable intensity. In the first quarter alone, official sector purchases totaled 244 tonnes net. Poland’s National Bank led the charge, adding 31 tonnes, while the People’s Bank of China continued its steady accumulation.

The World Gold Council notes a broadening of the buyer base. Central banks that were long inactive — including those from Guatemala, Indonesia, and Malaysia — have entered the market. That diversification of demand provides a floor under prices that didn’t exist in previous cycles.

Physical demand among private investors tells a more complex story. Global bar and coin purchases jumped 42% year-on-year to 474 tonnes, with Chinese investors setting a new quarterly record. But jewelry demand slumped by nearly a quarter as the absolute price level deterred buyers. Mining output hit a record quarter, while recycling activity rose only modestly.

The Hormuz Wild Card

The immediate outlook hinges on the Strait of Hormuz. US President Donald Trump’s “Project Freedom” aims to escort stranded vessels through the contested waterway, while Iran is reportedly reviewing a 14-point US proposal. If those diplomatic signals gain traction, the safe-haven bid could fade further, potentially pushing gold lower.

But if the military escort operation fails or the blockade intensifies, oil prices could spike even higher — Brent is already expected to trade between $115 and $135 in May — and the economic damage could eventually force the Fed’s hand. That scenario would be bullish for gold, but only after a lag.

The World Bank projects a 24% rise in energy prices this year, the highest since Russia’s invasion of Ukraine in 2022. Sustained crude above $110 to $125 would materially slow global growth, according to global institutions. That kind of macro shock could eventually break the current stalemate.

For now, gold remains trapped between a geopolitical bid and a monetary policy ceiling. The next move depends on whether Hormuz escalates or de-escalates — and whether the Fed finally blinks.