Iran Airstrikes and Fed Rate Bets Drag Gold Down, but $2.34 Billion ETF Inflow Reveals Durable Demand

Despite US airstrikes on Iran, gold fell 0.8% as rate hike expectations and a shift to oil pressured prices. Yet gold ETFs saw $2.34B inflows, signaling institutional hedging.

Gold’s price action on Tuesday offered a puzzle for traders: a fresh wave of US military strikes against Iran should normally boost the haven metal, yet the spot price slipped to $4,530 per ounce by 08:15 CET, down 0.8% from Monday’s $4,570. The explanation lies in a cross-current of conflicting forces — geopolitics pushing one way, interest-rate expectations pulling another, and the fund flow data telling a third story entirely.

The prompt for the sell-off came from US Central Command, which confirmed airstrikes on Iranian missile positions and minelayer boats. Crucially, the attacks landed while negotiations were still underway in Qatar over securing shipping lanes through the Strait of Hormuz. Secretary of State Rubio described Iran’s chokehold on the waterway as unacceptable but held out hope for a diplomatic resolution. That double-edged message erased the peace-dividend hopes that had lifted gold the previous session and pushed Brent crude 2% higher to $98.44 a barrel — drawing speculative money out of bullion and into oil. Silver got caught in the downdraft, losing as much as 2% to around $76.82.

Yet beneath the surface of Tuesday’s spot-market dip, a very different story is playing out in fund flows. According to LSEG Lipper data, gold and precious-metals funds attracted $2.34 billion in net inflows during the most recent weekly period, marking the second consecutive week of additions. The same period saw equity funds bleed $6.13 billion — the first weekly outflow from global stock funds in nine weeks. The World Gold Council’s April tally reinforces the trend: physically backed gold ETFs pulled in $6.6 billion globally, reversing March’s outflows. Holdings rose by 45 tonnes to 4,137 tonnes. Regional breakdown shows Europe leading with $3.7 billion, followed by Asia at $1.8 billion (its eighth straight month of inflows) and North America at $1 billion.

Macro headwinds are not deterring this institutional rotation. The 30-year US Treasury yield briefly climbed to 5.201%, the highest since 2007, which in theory raises the opportunity cost of holding a non-yielding asset like gold. The CME FedWatch Tool now puts the probability of another Federal Reserve rate hike before year-end above 56%, and ECB board member Schnabel has signaled a June rate increase. Yet investors continue to pour capital into bullion-linked products, treating gold as a hedge against both geopolitical tail risks and the potential for stagflationary pressure from rising long-term financing costs.

The picture is further complicated by a weaker US dollar and a dip in oil prices earlier in the week — factors that temporarily eased inflation fears and made gold cheaper for non-dollar buyers. On Monday, when US markets were closed for Memorial Day, spot gold rose 1.2% on international trading alone. The 52-week high of $5,450 still sits 17% above current levels, and the RSI at 49.8 suggests a neutral market with no clear directional bias.

What emerges is a market split between short-term price noise driven by headlines on Iran negotiations, Fed rhetoric, and oil price swings, and a structural bid from investors rotating out of equities into gold ETFs as a portfolio insurance play. Tuesday’s dip to $4,530 may feel like a setback, but the $2.34 billion weekly inflow signals that institutional demand remains anything but soft. The coming US data — Case-Shiller home prices, consumer confidence, and the Chicago and Dallas Fed reports — could either reinforce the rate-hike narrative or give gold a reprieve. For now, the tug-of-war between escalation fears and monetary tightening leaves gold in a tight band, with the fund channel providing a steady floor.