Gold remains caught between two powerful forces. On one side, easing tensions in the Middle East this week have removed a significant headwind for precious metals. On the other, a more hawkish Federal Reserve has revived concerns that US interest rates could move higher still. The result? A market being pulled in two directions at once.
The week began positively after reports emerged that the US and Iran had reached an agreement in principle to bring the conflict to an end and gradually reopen the Strait of Hormuz. Oil prices have fallen below $80 per barrel, easing one of the key pressures that has weighed on precious metals over the last three months. Encouragingly, this appears to be more than another false dawn. Tanker traffic has reportedly begun slowly moving through the Strait once again, while President Trump formally signed a Memorandum of Understanding at the conclusion of the G7 summit on Wednesday evening.
The agreement outlines a phased reopening of shipping routes, the removal of the US blockade and a ceasefire, while broader negotiations continue over the next 60 days. That said, markets remain cautious, with the last few months demonstrating just how quickly events can change, particularly with ongoing tensions involving Israel and Lebanon threatening to complicate the path to a lasting peace.
While developments in Iran helped support gold at the start of the week, attention quickly shifted back to the United States, with the mood there rather less supportive of the price of precious metals. As expected, the Federal Reserve left interest rates unchanged at 3.50%–3.75% following a unanimous, 12-0 vote. The surprise came not from the decision itself, but from the tone surrounding it.
The Fed's latest projections suggest policymakers are becoming increasingly concerned about inflation. Nine of the central bank's 19 policymakers now expect a rate hike during 2026, with none holding that view three months ago. More strikingly, a growing number of officials believe that even a single quarter-point increase may not be enough to bring inflation back towards the Fed's 2% target. As a result, the post Iran resolution rally quickly reversed, with gold falling at around 1.7% following the announcement, and investors reassessing the likelihood that the next move from the Fed could be a hike rather than a cut. With gold being a non-yielding asset, it tends to face greater competition when interest rates rise. Higher rates generally support the US dollar and government bond yields, both of which can make precious metals less attractive in the short term.
The next major test will come in July, when fresh inflation data is released. Consumer Price Index (CPI) and Producer Price Index (PPI) figures will provide further clues as to whether the Fed's increasingly hawkish stance is justified. If inflation remains stubbornly high, markets may continue pricing in future rate increases. If price pressures begin to ease, some of this week's concerns could quickly fade.
This year, it's easy to focus on the headlines of the day. Over the last three months, those headlines have largely been dominated by the Iran conflict and US monetary policy, yet gold has rarely been a short-term story. The longer-term picture remains supported by many of the same factors that have driven demand in recent years, with the latest World Gold Council Central Bank Gold Reserves survey providing a timely reminder of that.
According to the survey, central banks have accumulated gold at roughly twice the pace seen during the previous decade, while nine out of ten respondents expect global gold reserves to continue increasing over the next year. Almost half expect their own holdings to grow, whilst there is also a continuing trend towards repatriating gold reserves, with 9% of central banks planning on storing gold within their own borders rather than overseas, up from 5% the year before. That shift reflects a broader desire for control, accessibility and resilience in an increasingly uncertain world.
The same trend can be seen in global reserve holdings. According to the European Central Bank, gold has now overtaken US Treasuries as the world's second-largest reserve asset, with the yellow metal accounting for 27% of global central bank reserves at the end of 2025, compared with 22% for US Treasuries. For many countries, diversification away from the US dollar remains an important strategic objective, which in turn helps support the long-term fundamentals for the gold price.
So, while gold continues to wrestle with competing short-term forces, the longer-term foundations beneath the market show little sign of weakening.
