Gold edged higher on Thursday after touching a three-week low. Still, sentiment remained fragile as investors weighed a sharply divided Federal Reserve, a surge in oil prices triggered by the US-Iran confrontation, and the implications of both for US interest rates. Spot gold rose 0.7% to $4,573 an ounce after slipping to $4,548 in the previous session, its lowest level since late March. US gold futures for June delivery gained 0.5% to $4,585.10 an ounce. The move higher was helped by bargain hunting after recent weakness.
“Dip buying is playing a part in gold's recovery efforts today. Gold is representing a value proposition for traders at current levels,” said Tim Waterer, chief market analyst at KCM Trade.
Despite the rebound, bullion’s near-term upside remains constrained by soaring crude prices, which are reviving inflation concerns and reducing the likelihood of interest-rate cuts. Brent crude topped $124 a barrel on Thursday, its highest level since mid-2022, extending a rally that accelerated after the US imposed a naval blockade on Iranian ports. Prices had already surged above $118 a barrel on Wednesday, and crude has risen by more than 25% in the past two weeks alone.
The conflict has severely disrupted traffic through the Strait of Hormuz, one of the world’s most important oil chokepoints. Iran has refused to reopen the waterway until the blockade is lifted, while diplomatic efforts have repeatedly stalled. President Donald Trump said the US would maintain the blockade until Iran agreed to a nuclear deal.
“The blockade is somewhat more effective than the bombing. They are choking like a stuffed pig, and it is going to be worse for them. They can’t have a nuclear weapon,” Trump told Axios on Wednesday. By Friday, oil remained elevated even amid reports that Iran was engaging with a US peace proposal through Pakistan. Gold in London gave back roughly half of Thursday’s rebound and slipped back toward $4,600 an ounce, leaving it on track for its lowest weekend close since late March. “Oil is strangling gold,” one London trader told BullionVault. ICBC echoed that view, saying in a note that “upside momentum in gold remains constrained.”
Gold also came under pressure from Wednesday’s Fed decision, which delivered not just another pause on rates but a striking display of internal disagreement. The central bank left its benchmark funds rate unchanged at 3.5%-3.75%, marking its third consecutive hold. But the vote split 8-4, the most divided Fed decision since October 1992.
Three dissenters, Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan, did not oppose the rate hold itself but objected to keeping an easing bias in the statement, signaling they believed a rate hike was just as likely as a cut. A fourth dissenter, Governor Stephen Miran, called for a quarter-point cut.
The Fed’s statement said that “developments in the Middle East are contributing to a high level of uncertainty about the economic outlook” and that “inflation is elevated, in part reflecting the recent increase in global energy prices.”Jerome Powell, in his final meeting as chair before his term ends on 15 May, described the discussions as “vigorous.” He also confirmed he would remain on the Fed’s board as a governor through January 2028. Powell said more committee members wanted the policy statement to communicate a “neutral stance, so that a hike is as likely as a cut.”
Investors moved quickly after the decision to scale back expectations for monetary easing. Interest-rate futures now show markets pricing out rate cuts entirely for this year, while attaching a meaningful probability to a hike by early 2027. That is a significant headwind for gold, which typically performs better when real yields are falling, and the dollar is weakening.
For now, bullion is being pulled in opposite directions. Geopolitical stress is sustaining safe-haven demand, but the inflationary impact of higher oil prices is strengthening the case for tighter policy for longer.
The latest oil spike is also increasing pressure on major importing nations and raising concerns about wider economic damage. With the Strait of Hormuz effectively blockaded by both Iran and the US Navy, International Energy Agency head Fatih Birol warned that the world could be facing an unprecedented energy shock.“The world is facing the biggest energy crisis in history,” Birol said on Thursday. “The oil price is putting a lot of pressure on many countries.”
India, the world’s second-largest gold consumer and eighth-largest central-bank holder, relies on imports for 90% of its oil needs. According to Mint, every $1 increase in crude prices adds about $1.7 billion to the country’s annual energy import bill.
At the same time, Indian demand for gold has weakened sharply under the weight of record prices and higher taxes. Reuters reported that India’s gold imports fell last month to their lowest level in three decades after the Modi government imposed an additional 3% integrated goods and services tax, effectively reversing part of a 2024 duty cut.
China, the world’s largest gold consumer and fifth-largest official holder, is also highly exposed to energy costs as it relies on foreign supplies for 70% of its oil demand. Beijing had already tightened conditions on private gold trading last November by adjusting the VAT treatment of non-investment products.
Even so, some analysts argue that the current pullback could present a buying opportunity.ICBC said gold’s traditional role as a safe-haven asset remains intact, especially with central banks continuing to add to reserves in the first quarter. The bank said the longer-term outlook could improve if higher oil prices begin to destroy demand, slow growth, and increase recession risks.“Gold’s role as a traditional haven asset remains intact,” ICBC said. “The current price pullback may be viewed as a buying opportunity on dips... because the outlook remains bullish, especially if rising oil prices lead to demand destruction and heighten global recession risks.”
Chi Lo, senior market strategist for Asia Pacific at BNP Paribas Asset Management, said market attention could eventually shift from inflation risks back to growth concerns.“At some point, the market's focus will turn to growth risks and rate cuts again,” he said. “The gold price will then rebound. Central bank purchase will remain a long-term support for gold.”
For now, gold remains trapped between competing forces. Safe-haven flows are offering support, but surging oil prices and a more hawkish rate outlook are limiting gains. Until energy markets stabilize, inflation pressures ease, or the policy direction of incoming Fed chair Kevin Warsh becomes clearer, bullion may continue to struggle to gain stronger upward momentum.