Gold struggles despite Middle East tensions as Fed rate path and rising real yields dominate, while oil surges on Strait of Hormuz blockade fears.
The safe-haven playbook has been torn up. War in the Middle East typically sends investors scrambling for gold, but the current conflict between the US and Iran has produced a curious divergence: crude oil has surged while the yellow metal has struggled to hold its ground. The real driver for bullion right now isn’t geopolitics—it’s the Federal Reserve’s interest rate path.
Gold closed Friday at $4,723.70 per ounce, posting a weekly gain of roughly 2%. Since the start of the year, the metal has added nearly 9%. Yet that performance masks a significant pullback from its 52-week high of $5,450 reached in late January—a decline of about 13%.
The Fed’s grip tightens
The central bank has held its benchmark rate steady in the 3.5% to 3.75% range, and markets are betting it will stay there. According to the CME Group, nearly 95% of traders expect no change at the June meeting. Rising real yields are weighing heavily on gold, which offers no interest income.
A surprisingly strong US jobs report reinforced that outlook. The economy added 115,000 positions in April, nearly double the 65,000 analysts had forecast. The unemployment rate held firm at 4.3%. One detail offered gold investors a sliver of comfort: average hourly wages rose just 0.2% month-on-month, easing fears of a wage-price spiral that could force the Fed’s hand.
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Fed officials are already sounding cautious. Austan Goolsbee has warned that inflation has accelerated since the conflict began, complicating the case for rate cuts. J.P. Morgan now expects the next move to come in the third quarter of 2027, while Goldman Sachs still sees cuts arriving sooner.
A fragile peace and oil’s ripple effects
The geopolitical backdrop remains volatile. A fragile ceasefire between Washington and Tehran held through early May, but the situation is far from stable. The Trump administration is awaiting Iran’s response on reopening the Strait of Hormuz, with reports suggesting the answer may come via Pakistan in the coming days.
Meanwhile, US forces continue to intercept vessels in the Gulf of Oman. The US Central Command stopped two Iranian oil tankers on May 8. The effective blockade of this critical shipping route has sent oil prices soaring, stoking global inflation fears and further dimming hopes for rapid monetary easing.
Central banks and private investors build a floor
Away from the noise of geopolitics and interest rates, physical demand is providing a solid foundation. Central banks bought a net 244 tonnes of gold in the first quarter. China has been adding to its reserves for over 17 consecutive months. The value of these purchases hit a record $193 billion, reflecting both higher volumes and elevated prices.
Private investors are also piling in, particularly from Asia. Demand for bars and coins jumped 42% to 474 tonnes. Goldman Sachs’ commodities team sees this sustained diversification into real assets as a key reason for maintaining its $5,400 price target by end-2026.
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Chart levels and the week ahead
Technically, gold is testing a critical threshold. The metal is trading just below its 50-day moving average, which sits near $4,775. A weekly close above $4,840 would open the path back toward the record high of $5,450. Failure to break through could see the market test support at $4,380, with a deeper drop potentially targeting the $4,000 zone.
The next few days will be decisive. The US releases April consumer price data on May 12, followed by producer prices on May 13 and weekly jobless claims on May 14. Hotter-than-expected inflation readings would likely push gold toward the lower end of its range, while softer numbers could propel it back toward the $5,000 mark.
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