Gold’s Geopolitical Paradox: Why Escalation in the Strait of Hormuz Is Failing to Ignite a Rally

The precious metals market is wrestling with a curious contradiction. Geopolitical tensions in the Middle East are ratcheting higher by the day, yet gold is struggling to hold its ground. The yellow metal closed last week at $4,725 per ounce, shedding roughly 2.7 percent — a performance that has left many investors scratching their heads.

A Diplomatic Breakdown That Should Have Been Bullish

The most telling development came on April 25, when President Trump abruptly scrapped plans for envoys Witkoff and Kushner to travel to Pakistan for exploratory talks with Iranian leadership. The stated reason: “enormous internal power struggles” within Iran. Iranian Foreign Minister Araghchi subsequently left Pakistan empty-handed and flatly ruled out direct negotiations under pressure.

This diplomatic collapse compounds an already dire situation. Since US-Israeli airstrikes ignited a fresh conflict on February 28, the Strait of Hormuz has been effectively sealed. Normal traffic of roughly 130 vessels per day has collapsed to just five. Brent crude surged nearly 16 percent last week alone, closing at $99.78 per barrel before a modest pullback on Friday.

Under normal market logic, such a cascade of negative headlines should be rocket fuel for gold. But the metal is trading roughly 3 percent below its 50-day moving average and has surrendered about 13 percent from its 52-week high of $5,450 set in early January — despite a solid start to the year that saw it gain nearly 9 percent.

The Inflation Trap

The mechanism suppressing gold is well understood by now, even if it defies conventional safe-haven narratives. The Hormuz blockade is driving energy prices higher, which fans inflation fears, which in turn raises the probability of further interest rate hikes. For a non-yielding asset like gold, that is a toxic combination.

The Federal Reserve has held its benchmark rate at 3.50 to 3.75 percent since March, and the next FOMC decision on April 29 looms large. Any hawkish surprise could trigger an immediate repricing of both gold and silver.

Yet the major investment houses remain undeterred in their bullish forecasts. Goldman Sachs is targeting $5,400 by year-end, arguing that private investors who bought gold as a hedge against long-term macro risks will hold their positions. Deutsche Bank maintains a $6,000 price target, and J.P. Morgan has raised its goal to $6,300, citing sustained central bank buying and private investor demand.

Goldman’s analysts describe the risk profile as “significantly skewed to the upside,” noting that investors are likely to keep diversifying amid global uncertainty. A breakthrough in US-Iran negotiations could create short-term headwinds, they concede, but a failure would generate fresh buying impetus.

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

Silver’s Structural Story

Silver fared even worse, closing the week at roughly $75.67 per ounce with a loss of over 7 percent. The gold-to-silver ratio widened to about 62-to-1, reflecting industrial demand concerns amplifying the broader risk-off mood.

But beneath the surface, a structural transformation is underway. China imported roughly 836 tonnes of silver in March alone — nearly triple the ten-year seasonal average of 306 tonnes. In the first two months of 2026, imports had already reached 790 tonnes, with February accounting for 470 tonnes. Beijing has simultaneously restricted silver exports to just 44 state-approved companies.

The consequences are visible in pricing. Physical silver on the Shanghai Gold Exchange now trades at premiums of 12 to 13 percent above Western reference prices. Goldman Sachs has warned that China’s export licensing system could fragment the global silver market into isolated regional pools that can no longer balance each other out.

With global mine production unable to keep pace, the market is heading for its sixth consecutive supply deficit. J.P. Morgan sees a medium-term floor at $75 to $80 per ounce. China’s demand pull is acting as a structural anchor that limits the downside, even if short-term momentum remains negative.

A Regulatory Headwind

Adding to the pressure on precious metals, Revolut has halted bullion trading for customers in Bulgaria and eight other EEA countries. Affected investors have two months to liquidate their positions — a modest but real source of selling pressure that has gone largely unnoticed amid the geopolitical drama.

What Comes Next

Prediction markets put the probability of a nuclear deal or peace agreement by the end of April at under 4 percent. Further escalation is the baseline scenario, not the exception.

Whether gold ultimately benefits depends on whether the Hormuz blockade persists long enough to shift capital flows from oil hedges into precious metals. The RSI at roughly 50 signals neither overbought nor oversold territory — technically, the market is wide open.

The next diplomatic move from Washington or Tehran will likely move the needle more than any chart level. For now, gold remains trapped in a paradox where the very forces that should lift it — geopolitical chaos and inflation — are instead holding it down through the channel of interest rate expectations.