Gold’s Two-Speed Market: Record Physical Buying Masks a $12 Billion Institutional Exodus

Gold falls 3% weekly as Fed rate stance and Strait of Hormuz oil shock create a rare headwind, despite record physical demand from China and central banks.

Gold is trapped in a paradox that has left even seasoned precious metals investors scratching their heads. The metal that historically thrives on geopolitical turmoil is instead suffering its worst monthly decline in weeks, caught between a hawkish Federal Reserve and a supply shock that is doing the opposite of what textbook economics would predict.

At $4,536 an ounce on Thursday morning, spot gold has shed roughly three percent on a weekly basis, sliding to its lowest level in a month. The trigger is not a lack of demand—far from it—but a peculiar macroeconomic feedback loop that has turned the Strait of Hormuz crisis into a headwind rather than a tailwind for the yellow metal.

The Fed’s Farewell and the Oil-Inflation Trap

The Federal Reserve left interest rates unchanged at its latest meeting, keeping the federal funds rate in a range of 3.50 to 3.75 percent. Chairman Jerome Powell surprised markets by signaling he would remain on the Fed’s board of governors, extending his influence beyond his term as chair. For gold, which pays no yield, the message was unmistakable: rates will stay higher for longer, and possibly rise further.

The inflation picture complicates matters considerably. The closure of the Strait of Hormuz has cut off roughly 20 percent of global oil shipments—the International Energy Agency called it the largest supply shock in history. Brent crude has held above $110 a barrel, cementing inflation expectations and keeping the Fed on hold. Higher real yields are crushing gold’s appeal, even as the geopolitical backdrop would normally send investors scrambling for safety.

Washington and Tehran have shown tentative signs of dialogue. President Trump has reportedly indicated a willingness to reach a deal, while Iranian President Pezeshkian has expressed conditional openness to talks. But until shipping through the Gulf resumes, the oil-price-inflation-rate loop that is punishing gold will remain firmly in place.

A Market Divided: Record Physical Demand Meets Institutional Flight

The World Gold Council’s Gold Demand Trends report for the first quarter, released on April 29, tells a tale of two markets. Total demand edged up to 1,231 tonnes, but the extraordinary price surge pushed the value of that demand to a record $193 billion—a 74 percent jump.

Physical buyers have been anything but shy. Bar and coin demand hit 474 tonnes, the second-highest quarterly figure ever recorded. Chinese investors alone purchased 207 tonnes, smashing the previous record set in the second quarter of 2013. Central banks added a net 244 tonnes, three percent more than a year ago, with Poland standing out as the most aggressive sovereign buyer.

The institutional picture is starkly different. Physically backed gold ETFs saw $12 billion in outflows in March—the largest monthly exodus on record. North America alone bled $13 billion, snapping a nine-month streak of inflows. The result is a two-tier market where retail investors are buying with conviction while institutions are heading for the exits.

Chart Support and the Data Calendar

Technically, gold has broken below its 200-hour moving average and lost critical momentum. The former support zone near $4,670 has flipped into formidable resistance. If the metal slips below its recent low of $4,555, further selling could accelerate. Immediate support sits at $4,520, the trough touched on April 29.

The next major catalyst arrives on May 1 with the US manufacturing PMI for April, a data point that could either fuel or defuse the rate-inflation debate. Before that, Thursday’s advance reading of first-quarter US GDP will set the tone. The Atlanta Fed’s GDPNow model is tracking growth of just 1.24 percent—a weak print that could revive rate-cut expectations and lift gold. Stronger data would reinforce the higher-for-longer narrative and extend the correction.

Wall Street Stays Bullish Despite the Selloff

Major banks are holding firm on their year-end targets despite the current downdraft. JPMorgan Global Research sees gold at $6,300 by the end of 2026, Goldman Sachs at $5,400—dismissing the March selloff as a positioning cleanup—and UBS forecasts $5,200 by June and $5,900 by year-end.

For now, the immediate path depends on whether the Hormuz crisis eases and whether US economic data gives the Fed room to pivot. If Washington and Tehran make concrete progress, the oil-inflation-rate loop that is squeezing gold could lose its grip. Until then, the metal remains caught between record physical demand and a macro environment that refuses to cooperate.