Gold Caught in a Feedback Loop as Oil Shock Fuels Rate-Hike Expectations
01.06.2026 - 19:02:28 | boerse-global.de
Gold slid into the new trading week on Monday, losing 1.54% to close at $4,499.60 an ounce — a move that laid bare an increasingly uncomfortable truth for the precious metal. Rather than rallying on fresh military escalation between the US and Iran, bullion sold off as traders priced in the inflationary consequences of a disrupted oil route.
The Strait of Hormuz, which normally handles around 20% of the world's crude oil and an equal share of liquefied natural gas, has been effectively shuttered since February 28, 2026, with shipping volumes now at just 5% of pre-conflict levels. That bottleneck is forcing energy prices higher, feeding inflation fears, and in turn strengthening the case for the Federal Reserve to keep monetary policy tight — or even tighten further. For a non-yielding asset like gold, that is a toxic combination. Over the weekend, Washington and Tehran exchanged draft proposals aimed at extending the ceasefire and reopening the waterway, but the outcome of those talks remained uncertain.
The negative correlation between gold and oil has become unusually pronounced. Instead of acting as a traditional safe haven, the yellow metal is now behaving more like a risk asset, falling as crude climbs. That dynamic was on full display Monday as energy price worries outweighed geopolitical risk premiums.
Hawkish bets cloud the rate outlook
The US central bank left its benchmark rate unchanged at 3.50% to 3.75% at its April 29 meeting — the third consecutive hold since the last cut on December 10, 2025. But markets are increasingly bracing for a reversal. The CME FedWatch Tool now assigns a 51% probability of a rate hike of at least 25 basis points by year-end, while a separate reading puts the chances of a specific increase at 47.4% against a mere 0.6% for a cut. That represents a dramatic shift in sentiment since the start of the year.
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Adding to the hawkish narrative, the ISM Manufacturing PMI for May came in at 54.0, comfortably above expectations and signaling sustained economic momentum. The equity and bond markets will now pivot to Friday's non-farm payrolls report, which is widely seen as the next potential catalyst for either delaying or accelerating a policy shift. Analysts will also scrutinize the FOMC meeting on June 16-17, which will deliver fresh economic projections and an updated dot plot that could set the tone for the second half of the year.
US inflation data for April already showed the strongest monthly gain in three years, reinforcing the view that price pressures are not cooling fast enough for the Fed to ease.
A tale of two demand streams
Underneath the price action, demand for gold presents a starkly divided picture. Central banks remain heavy buyers, adding 244 tonnes net in the first quarter, a 3% increase from a year earlier, according to the World Gold Council. Gold exchange-traded funds also saw inflows of 62 tonnes. Combined, total global demand hit a record 1,231 tonnes during the period.
Jewelry consumption, however, cratered, falling 23% year-on-year as high prices and strong dollar headwinds deterred Western buyers. In Asia, the story is more nuanced. India's demand remains subdued under the weight of elevated prices and import duties, while in China, premiums have narrowed and market sentiment turned cautious. Yet bar and coin investment has held up relatively well in both countries, providing a partial offset to the jewelry slump.
Technical tone and the week ahead
Gold is now trading roughly 3% below its 50-day moving average of $4,639 and about 17% off the January record high of $5,450. Still, it clings to support just above the 200-day moving average. The 30-day volatility gauge sits at 19%, and the relative strength index is a neutral 49.8, signaling that the selloff has not yet become oversold.
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Strategists view the current weakness as a correction within an otherwise intact long-term trend — provided the fundamental backdrop does not deteriorate further. On a month-to-date basis, gold is down roughly 0.8%, but the year-to-date return still stands at a robust 34%.
The fate of that rally now hinges on two big unknowns: whether the Strait of Hormuz will reopen and defuse the oil-inflation spiral, and whether Friday's jobs data will cement hawkish expectations or offer the Fed room to pause. The one structural pillar that remains unequivocally supportive is the ongoing pace of central bank purchases — but with the other two supports wavering, gold is walking a tightrope between competing pressures.
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