Gold and war, misaligned

In global markets, geopolitical conflict has typically led to increased demand for gold as investors seek safe assets. Gold, which carries no issuer or counterparty risk, has historically been a central component of that shift.

In March 2026, however, as war expands across the Middle East, that pattern has not held. Gold prices have fallen sharply, approaching a 20 percent decline from their January peak, a drop comparable to the sell-off that followed its 2020 pandemic-era highs. Instead of rising alongside geopolitical risk, the metal has moved in the opposite direction. This reflects not a temporary deviation, but a change in how the conflict is being priced in global markets

What gold actually responds to

Recent empirical work suggests that gold’s relationship to geopolitical conflict is more conditional than commonly assumed.

According to research from the World Gold Council (2024), real interest rates are among the strongest drivers of gold prices. Because gold does not generate income, its appeal depends on the returns available elsewhere. When real returns are low or negative, gold tends to benefit; when they rise, its relative attractiveness declines.

A 2020 study by economists Dirk Baur and Thomas McDermott similarly finds that gold’s safe-haven behavior is strongest during periods of extreme financial stress, particularly during significant declines in stock markets, rather than during geopolitical shocks alone.

Taken together, this suggests that gold does not respond directly to conflict itself, but to the financial conditions it sets in motion, particularly shifts in inflation, interest rates, and currency strength.

A pattern that once held

According to analysis by the European Central Bank, gold prices have historically tended to rise during periods of elevated geopolitical risk, though the underlying drivers have differed.

During the 1973 Oil Crisis, gold surged alongside inflation, as oil prices quadrupled and real interest rates turned sharply negative. The metal rose from roughly $65 per ounce in 1972 to over $180 by 1974, continuing its climb as inflation eroded the purchasing power of currencies, pushing real returns lower.

In the aftermath of the September 11, 2001 attacks, gold rose more gradually, supported less by immediate panic than by a prolonged period of monetary easing. As the Federal Reserve cut rates and real yields declined, gold began a multi-year ascent, as returns on traditional assets weakened.

More recently, following Russia’s invasion of Ukraine in 2022, gold briefly spiked above $2,000 per ounce. But the rally proved short-lived. As central banks moved aggressively to raise interest rates in response to inflation, gold retreated.

Across these episodes, a consistent pattern emerges. Gold rises not simply because war occurs, but because it creates conditions, such as low real interest rates or financial stress, that increase its relative appeal.

When inflation works against gold

The current war is producing a different configuration

Recent analysis from Bloomberg points to rising oil prices, driven in part by instability around the Strait of Hormuz, as a key force feeding into inflation and reshaping expectations for interest rates. The pressure on gold reflects not an absence of geopolitical risk, but the persistence of higher yields, as investors scale back expectations for rate cuts.

Rather than creating the conditions that typically support gold, this environment is doing the opposite. Higher real yields make income-generating assets more attractive by comparison, reducing the relative appeal of holding gold.

A stronger U.S. dollar further reinforces the shift. Because gold is priced in dollars, its appreciation makes the metal more expensive globally while drawing capital into higher-yielding dollar assets, further reducing gold’s appeal.

When the dollar becomes the safe haven

The U.S. dollar plays a central role in periods of global stress. A 2020 study by the Bank for International Settlements (BIS) finds that the dollar tends to strengthen during periods of crisis, reflecting its central role in global funding markets and its status as the primary reserve currency.

In such periods, capital can flow into both gold and the dollar, but which one dominates depends on the nature of the shock. The BIS describes this as a “dollar liquidity” effect, where demand for dollar funding can outweigh demand for alternative stores of value, including gold.

That dynamic is visible now. As energy prices rise and global trade becomes more uncertain, demand for dollar liquidity has increased, particularly among energy-importing economies facing higher import bills, reinforcing the dollar’s dominance over gold.

Gold without fear

Recent stabilization in gold prices suggests markets are searching for equilibrium, but not reversing course. Capital is not fleeing the system; it is flowing into it, toward dollar assets, interest-bearing investments, and liquidity.

This reflects a shift in how the war is being priced. Rather than triggering financial panic or monetary easing, it is driving inflation and policy tightening, conditions that support real yields and strengthen the dollar. And in that environment, gold is no longer the obvious place to hide.