Gold's Record Q1 Demand Drowned Out by Dollar Surge and Rate-Hike Bets
26.06.2026 - 16:37:26 | boerse-global.de
The gold market is grappling with a stark disconnect. Physical demand in the first quarter hit an all-time high of 1,231 tonnes, including OTC transactions, yet the yellow metal has shed close to 28% of its value since January's record. The culprit? A resurgent US dollar and growing conviction that the Federal Reserve will deliver a rate hike before the year is out.
Spot gold traded at around $4,049.70 an ounce on Thursday, after briefly dipping below the psychologically important $4,000 threshold during the week. Over the past seven days alone, the precious metal lost roughly 3%. The dollar, meanwhile, climbed to its strongest level in more than a year, making dollar-denominated bullion more expensive for overseas buyers and accelerating the sell-off.
The hawkish turn in Fed rhetoric has been the primary catalyst. Chairman Kevin Warsh has reiterated his commitment to price stability, and markets now price in a roughly 63% probability of a rate increase in September, with the odds for December rising to 80% — up from 29% for September just a week ago. A higher-rate environment raises the opportunity cost of holding non-yielding assets like gold, prompting investors to reduce exposure.
Should investors sell immediately? Or is it worth buying Gold?
The pain has been concentrated in the paper market. Western gold ETFs recorded net outflows as institutional and retail participants rotated out of bullion-backed funds. That flow contrasts sharply with the physical side, where central banks have been relentless buyers. The People’s Bank of China added to its reserves for the 18th consecutive month, and globally, official sector purchases reached 244 tonnes net in the first quarter — a 3% increase year on year. A recent World Gold Council survey underscored the trend: nearly 90% of central banks expect global gold reserves to rise further, and 45% plan to expand their own holdings.
Geopolitical tensions have added a layer of complexity. The conflict involving the US, Israel and Iran has pushed energy prices higher, reinforcing expectations of a tighter monetary stance. Since the hostilities flared in February, gold has suffered heavy losses. Yet the mining sector has been largely insulated. According to a PwC study, gold miners posted an average EBITDA margin of 71% last year, contributing $22 billion to the broader mining industry’s profit pool. That resilience has not translated into a rush of new mine investment, however — capital spending on greenfield projects remains subdued.
Wall Street has responded to the price slide by cutting forecasts. Goldman Sachs recently lowered its year-end target to $4,900 an ounce, while Deutsche Bank now expects gold to finish the fourth quarter at $4,800. Those levels still imply a rebound from current prices, but the downgrades underscore how quickly the macro outlook has shifted.
For now, the balance of forces remains tilted against gold. The dollar’s strength, the rising probability of a rate increase, and continued ETF liquidation are powerful headwinds. Yet the underlying physical market — driven by voracious central bank demand and record quarterly consumption — provides a long-term floor. The question is whether that structural support can hold against the monetary headwinds that have already knocked the price 28% off its peak.
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