Gold’s Paradox: Why an Oil Shock Is Weighing on the Precious Metal

The Strait of Hormuz is effectively shut, Brent crude has blasted past $100 a barrel, and geopolitical tensions are simmering at their highest in years. For gold, this should be a moment in the sun. Instead, the yellow metal is retreating.

On Thursday, spot gold slipped roughly 0.9% to $4,717 an ounce, and earlier in the week it briefly dipped below $4,700 — its weakest level in seven days. Since the Iran conflict escalated, gold has shed more than 8% of its value. The culprit? A perverse market logic where higher oil prices are actually crushing the case for bullion.

The Inflation-Zins Trap

When Brent surged to around $103 a barrel after Iran seized two vessels and fired on others, the immediate reflex was to price in stickier inflation. That has upended expectations for the Federal Reserve. Traders now see the first rate cut as at least six months away, with the probability of a move in December sitting at just 26%. For a zero-yield asset like gold, that is poison. The opportunity cost of holding it rises with every month the Fed stays hawkish.

The dollar has added to the pain. The Dollar Index is hovering near 98.65, bolstered by its safe-haven appeal. Since gold is priced in dollars, a stronger greenback makes it more expensive for buyers outside the US, damping physical demand. Technically, the metal is now trading below its 50-day moving average of roughly $4,886. Analysts see support at $4,670, with meaningful resistance not appearing until $4,890.

A Split Market: Energy Soars, Metals Sink

The divergence across commodities could hardly be starker. Energy markets are feasting on the supply shock: Brent has added nearly 54% year-on-year, and the EIA sees a peak of $115 a barrel in the second quarter if the blockade persists. WTI has recovered from a test of $84.35 to around $93, though it remains below both its 100- and 200-day averages — a technical warning that the path higher is not guaranteed.

Gold and silver, by contrast, are suffering from the spillover effects. Silver has been hit even harder, falling below $77 an ounce and posting a loss of over 15% since the conflict began. Its all-time high of $121.64 from January now looks distant. Yet the longer-term picture tells a different story: silver is still up 144% year-on-year and gained nearly 16% in the past month alone. The metal’s dual nature — half industrial commodity, half monetary asset — creates a tug-of-war. Around half of global silver demand comes from industrial uses, with solar panels alone consuming over 230 million ounces annually. The market is heading for its fifth consecutive deficit year, with a cumulative supply shortfall of 820 million ounces since 2021. That structural scarcity provides a floor, but short-term dollar strength and rate expectations are overwhelming it.

Central Banks and the Debasement Trade

Despite the near-term headwinds, the big investment houses remain resolutely bullish. Goldman Sachs has reiterated its year-end target of $5,400 an ounce, even after March delivered the largest monthly loss since June 2013. J.P. Morgan sees gold at $6,000 to $6,300 by the end of 2026, while Wells Fargo holds out the possibility of $8,000 over the long haul, driven by what it calls the “debasement trade” — the erosion of fiat currency purchasing power.

Should investors sell immediately? Or is it worth buying Gold?

Central banks are still buying physical gold in size, led by China and India. That is providing a floor under the market. But for now, monetary policy headwinds are dominating. Kevin Warsh, the new Fed chair, used his confirmation hearing to call for a new monetary policy framework to combat persistent inflation, though he remained vague on specifics. That uncertainty is adding to market jitters.

Geopolitics: The Wild Card That Cuts Both Ways

The political situation remains fragile. President Trump extended the ceasefire with Iran but cancelled planned face-to-face talks. The US naval blockade continues, and Iran has made its lifting a precondition for lasting de-escalation. Pakistan is attempting to mediate, offering negotiations within the next 36 to 72 hours.

For gold, the geopolitical backdrop provides a baseline of support — but not enough to offset the dollar and rate pressure. A further escalation could flip the script: if uncertainty crosses a certain threshold, safe-haven demand would likely return with force. The EIA’s base case assumes the conflict does not extend beyond April and that transit through the Strait of Hormuz gradually resumes. Under that scenario, Brent would fall below $90 by the fourth quarter. But Goldman Sachs warns of an extreme scenario where a prolonged blockade pushes oil to $120 by the third quarter — a 30-dollar spread that captures the immense uncertainty.

Tokenized Gold: A Niche Bright Spot

While the physical market struggles, one corner is thriving. Tokenized gold — digital representations of the metal — surpassed a market capitalization of $5 billion in the first quarter of 2026, growing far faster than the traditional bar and coin market. It is a sign that demand for gold exposure is shifting, even as the spot price treads water.

What to Watch Next

The next catalyst could come from US purchasing managers’ index data. If the numbers miss expectations, rate-cut speculation could revive, offering gold at least a temporary reprieve. June futures are trading at $4,721, signalling little optimism for a swift recovery.

For now, gold is caught in a paradox: the very forces that should lift it — geopolitical turmoil, inflation fears — are instead feeding a stronger dollar and higher rates. The metal is waiting for a trigger that breaks the cycle. Whether that comes from a diplomatic breakthrough, a policy pivot, or an escalation that finally reignites safe-haven demand remains the defining question for the weeks ahead.