The logic that geopolitical turmoil should lift gold has turned on its head. As tensions around the Strait of Hormuz push Brent crude above $100 a barrel, the precious metal is sliding — caught in a paradox where the very forces that typically boost haven demand are instead undermining it.
The culprit is inflation. Surging energy costs are feeding into broader price pressures, which in turn are cementing expectations that the Federal Reserve will keep interest rates elevated for longer. According to a Reuters poll, market participants now see the first rate cut at least six months out, while swaps markets have pushed expectations for any easing as far out as July 2027. For a non-yielding asset like gold, that timeline is punishing — the longer rates stay high, the more expensive it becomes to hold bullion relative to interest-bearing alternatives.
Spot gold hit a weekly low of $4,697 on Thursday, bringing its week-to-date decline to nearly 2.5%. The annual gain still stands at roughly 9%, but the near-term picture has darkened considerably. The metal is now trading below its 50-day moving average, a bearish signal that has caught the attention of institutional analysts.
Morgan Stanley has responded by slashing its price target for gold from $5,700 to $5,200 per ounce. The bank cited delayed rate cuts and softening central bank demand as key reasons for the downgrade, alongside noticeable outflows from physically backed exchange-traded funds.
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The macro headwinds were reinforced by robust U.S. economic data. The S&P Global Flash Manufacturing PMI for April hit 54.0 points — a 47-month high — while input costs climbed to their highest level in ten months. That strength pushed the yield on 10-year U.S. Treasuries to 4.349% and lifted the dollar, both of which weigh on gold. The services sector also remains in expansionary territory, adding to the case for a prolonged restrictive policy stance.
On the geopolitical front, the situation remains volatile. The U.S. has reportedly given Iran a multi-day ultimatum to present peace proposals, while the blockade of the Strait of Hormuz continues to disrupt shipping lanes. But rather than driving safe-haven flows into gold, the crisis is amplifying the very inflationary pressures that keep the Fed hawkish.
Still, not all demand is fading. China’s central bank extended its gold-buying streak to 17 consecutive months in March, adding five tonnes to its reserves. Globally, central banks purchased 863 tonnes of the metal last year, providing a structural floor that has so far prevented a sharper selloff.
Technically, gold finds initial support near $4,650. A more critical level lies at the 200-day moving average, currently around $4,239. A sustained break below that threshold would put the long-term uptrend in jeopardy. For now, the metal’s fate hinges on two variables pulling in the same unfavorable direction: the trajectory of Fed policy and the evolution of the Hormuz crisis.
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