Gold's Record Q1 Tonnage Can't Escape the Fed's Shadow or the Shadow Over Hormuz

Gold fails to rally despite record $193B Q1 demand as Fed signals no rate cuts and Strait of Hormuz tensions drive inflation higher, pressuring bullion.

The precious metal is trapped between a blockbuster demand quarter and two formidable adversaries: a Federal Reserve that sees little room to ease and a geopolitical standoff that is reshaping energy markets and inflation expectations. Despite a record 1,231 tonnes of gold changing hands in the first quarter — worth an eye-watering $193 billion — the price has been unable to build upward momentum. On the week, gold is set to close roughly 2.6% lower, with the 30-day decline nearing 5%.

A Hawkish Fed Locks the Door on Rate Cuts

The minutes from the Federal Reserve’s April 28-29 meeting put paid to any lingering hopes of near-term policy loosening. While the central bank held its benchmark rate at 3.50% to 3.75%, the tone was decidedly cautious. A majority of participants saw further tightening as possible if inflation remains stubbornly above 2%. Three members went so far as to push back against any dovish tilt in the statement language.

For gold, which offers no yield, higher borrowing costs and a firm dollar raise the opportunity cost of holding bullion. The CME Group’s FedWatch tool now shows a 97.4% probability that rates stay put in June. That leaves the metal without a clear catalyst from monetary policy.

But the minutes also flagged financial stability risks that could eventually support gold’s safe-haven appeal. Policymakers described risks in the U.S. system as "notable," citing elevated asset valuations, rapid expansion in the private credit market, and high leverage among hedge funds in Treasury positions. The Fed warned of the potential for abrupt corrections. That narrative — a system under stress but no easing in sight — is exactly the kind of crosscurrent that keeps gold range-bound.

The Strait of Hormuz Adds an Inflationary Twist

Meanwhile, the standoff over the Strait of Hormuz is injecting fresh upward pressure into energy prices, and by extension into inflation. U.S. Secretary of State Marco Rubio on Thursday spoke of "good signs" for a deal but drew a red line: any agreement would be "unworkable" if Iran retains permanent control over shipping through the waterway.

Tehran is pushing ahead regardless. Iran and Oman are negotiating a permanent security mechanism for the strait, and the newly created Persian Gulf Straits Authority is already levying transit fees — in some cases exceeding $1 million per vessel. Russia and China are exempt. Washington considers those fees non-negotiable and insists on restoring free passage under the UN Convention on the Law of the Sea.

Before the disruption, roughly one-fifth of global oil and liquefied natural gas trade flowed through the 35-kilometer choke point. The continuing bottleneck keeps energy prices elevated, feeding into consumer price pressures.

Those pressures are visible in the University of Michigan’s final May survey, which put one-year inflation expectations at 4.5% — up from 3.4% before the war began in February. Consumer sentiment sank to an all-time low of 48.2, the worst reading since records started in November 1952, as rising gasoline prices, tariff worries, and falling real income expectations weighed on households.

Demand Data Tells a Two-Sided Story

The Q1 demand figures offer some comfort but no clear directional signal for prices. Total demand including over-the-counter trading hit 1,231 tonnes, with the dollar value reaching a record $193 billion. Bar and coin investment came in at 474 tonnes. Central bank purchases added a net 244 tonnes, while gold exchange-traded funds saw inflows of 62 tonnes.

Jewelry demand, however, collapsed 23%, a sign that high prices are choking off consumption. That weakness tempers the otherwise robust headline number.

On the futures side, the Commodity Exchange (COMEX) has not seen aggressive short positioning, and the metal remains in a neutral zone. Over the past twelve months, gold is still up roughly 35% — a cushion that has held so far.

No Clear Impetus in Sight

The metal is stuck between two forces: financial stability risks that could eventually trigger a flight to safety, and a monetary policy posture that is in no hurry to deliver relief. Whether the risks the Fed identifies translate into actual market dislocations will determine which narrative prevails.

For now, the next decisive move is likely to come from Washington — either a breakthrough in the Hormuz talks or fresh inflation data that forces the central bank's hand. Until then, gold remains confined to a familiar trading range, its record demand story unable to overcome the weight of higher yields and geopolitical uncertainty.