War, Oil Prices, and Gold: Three Paradigms Under Repeated Geopolitical Conflicts
Whenever geopolitical conflict arises, the market’s first reaction is often to “buy gold.” But if you extend the timeline, you’ll discover: same wars, same spikes in oil prices, sometimes gold surges, sometimes it retreats after jumping, and sometimes it even weakens all the way through. What truly determines the direction of gold prices is often not the war itself, but whether oil prices can elevate inflation to a new level, and whether central banks will use higher real interest rates to forcibly suppress this “war premium.”
Lin Jiali, an analyst at Guohai Securities, puts the core logic plainly in his report: “Geopolitical conflict only gives gold a first-stage, short-term risk-aversion sentiment. Whether gold can embark on a sustained bull, the secondary determining factor is whether oil prices substantially elevate the inflation center and how the central banks respond to inflation (the direction of real rates).”
This report places samples such as the Fourth Middle East War/Oil Embargo in 1973, the Iranian Revolution crisis in 1979, the Iran-Iraq War in 1980, the Gulf War in 1990, the Iraq War in 2003, the 2020 U.S.-Iran conflict, the 2022 Russia-Ukraine conflict, and the 2025 “12-day War” into a single framework for back-testing, finally summarizing three common “paradigms”: structural supply shocks bringing stagflation and a trending gold bull; temporary or substitutable supply interruptions where oil and gold only have a pulse rally; and central bank reaction functions suppressing the war premium so gold gets pressured.
Applying this historical framework to the 2026 US-Israel-Iran conflict, the report’s conclusion inclines toward “realism”: oil’s center may rise from $70 to the $95–105 range, but inflation is currently “elevated but not out of control,” and the Fed isn’t yet considered “behind the curve.” In this scenario, gold appears more like an asset fluctuating widely at high levels; for a smoother upward trend, you’d either wait for a ceasefire combined with US economic slowdown and a Fed rate cut signal, or for the conflict to escalate to a long-term Hormuz Strait blockade, inflation expectations become unanchored, forcing the central bank to yield — the latter path is bumpier and could see gold fall first, then rise.
Don’t Just Focus on the Fighting: Whether Oil Price “Shifts Center” Is the First Gate
The report divides oil price shocks into “pulse” and “center elevation” types, depending on whether the supply gap is large and prolonged enough, and whether substitutable supply can offset it.
The key in 1973 wasn’t the day the war began, but the OAPEC oil embargo on the US: oil prices jumped from about $2.9/bbl pre-embargo to $11.65/bbl in Jan 1974, and didn’t fall back after the embargo ended. Gold didn’t immediately surge one-way after hostilities began; it even dipped. The real bull phase emerged only after the market confirmed that the oil shock would turn into a longer-term inflation problem.
In contrast, the 1990 Gulf War initially caused a sharp supply drop and oil spike, but was quickly offset by releasing stockpiles and substitute supplies, so oil fell back and gold quickly dropped to pre-war levels. The 2020 US-Iran conflict and 2025 “12-day War” were more like “tail-risk repricing”: the market first bought the worst case, but quickly unwound the premium once crude shipping continued or retaliation was controlled.
The report emphasizes: unless oil prices shift from “news-driven spikes” to a “new price center,” gold finds it hard to extend risk-aversion into a trend bull.
Stagflation Is the Switch That Turns Risk Aversion into Trend — Not Just “Oil Price Up”
Oil’s impact on gold must pass the “inflation + growth” second filter. The report describes the typical environment in which “gold shifts from short-term risk-aversion to trend bullish” as a stagflation scenario, where high inflation and low growth are priced simultaneously.
The classic sample is the 1979 Iranian Revolution crisis: crude prices nearly doubled between 1979 and 1980, rising from under $15/bbl at end-1978 to near $40/bbl in 1980; US CPI soared to 13.3% at end-1979, and monetary policy was soft initially, so market confidence in fiat weakened and gold entered a historic bull market.
Contrast with the 2003 Iraq War: Iraq’s pre-war exports averaged about 2 million bbl/day, much smaller gap than 1990, and other OPEC members could and did fill in. Gold traded uncertainty ahead of the war, fell back after the “sell the fact” phase, and when strength returned later, the driver resembled a broader macro gold bull, not oil itself.
The Central Bank Reaction Is Often “Harder” Than War: Real Rates & Dollar Can Suppress War Premium
The report pulls out the third paradigm: War and oil price are positives for gold, but if the central bank fights inflation with aggressive tightening, real rates and the dollar become main sources of gold price pressure.
The 1980 Iran-Iraq War is typical: oil price surge didn’t prevent gold’s sharp correction during Volcker’s anti-inflation cycle. The report stresses, the real “killer” for gold was a spike in real rates and a stronger dollar, raising opportunity cost.
The 2022 Russia-Ukraine conflict offers a similar structure: initial hedging was effective, but then suppressed by Federal Reserve tightening — citing US 10-year TIPS real yield rising 250bp in 2022, dollar index up by 8%, gold ultimately gave back much of the war premium.
The meaning is direct: when markets shift narrative from “central bank hawkishness” versus “war intensity,” gold is prone to transition from a risk-hedge asset to one priced by macro rates.
Breaking Down Gold: Currency, Risk, Interest Rates, and Liquidity Compete for Explanatory Power
To answer “why gold’s path varies so greatly even with a big oil surge,” the report introduces the World Gold Council’s GRAM framework, breaking gold returns into four drivers: currency (dollar strength), risk/uncertainty, rates/liquidity, and momentum/trend (including ETFs, net futures longs, etc).
This breakdown doesn’t offer a “magic indicator,” but lays out an often-overlooked fact: gold doesn’t only depend on “geopolitical risk.” Dollar index, 10-year real rates, inflation expectations, capital flows — when any variable takes dominance, gold can trace completely different curves in the same conflict.
Back to 2026: Three Gates Currently Form a “High-Level Fluctuation” Combination
For the 2026 US-Israel-Iran conflict, the report tests “three conditions” one by one.
Condition 1: Has the Oil Price Center Elevated?
The judgment is the center may rise from $70 to a $95–105 range, but this highly depends on negotiations and Hormuz Strait reopening. It cites IEA data: Hormuz transported about 20 million bbl/day in 2025, 25% of global seaborne oil trade; reserves release can mitigate partially, but unlikely to cover all losses, and LNG isn’t protected.
Condition 2: Is Inflation “Totally Out of Control?”
The report’s verdict: “Elevated but far from out of control”: Feb CPI YoY 2.4%, core CPI 2.5%; Jan total PCE YoY 2.8%, core PCE 3.1%. NY Fed’s Feb survey: 1-, 3-, and 5-year inflation expectation medians all at 3.0%, meaning long-term expectations haven’t unanchored. It clarifies observation focus: CPI/PCE need to rise again for 2–3 months, core turns up, and medium/long-term expectations unanchor.
Condition 3: Is the Central Bank Behind the Curve?
Conclusion: “Not currently defined as behind the curve.” Supported by two points: policy rate midpoint at 3.64%, so real policy rate is positive; 10-year TIPS real yield as of Mar 27 at 2.13%, market hasn’t priced Fed as forced to tolerate inflation.
All three together, report believes: short-term gold still constrained more by dollar and real rates, not driven singularly by geopolitical headlines.
Three Paths: True Divergence Comes from “Reopening” and “Rate-Cut Signals”
The report breaks down subsequent scenarios into three paths:
- A: Mild Landing, Narrow Fluctuation — Strait partially reopens in 2–3 months, oil falls back to near $90 but doesn’t return fully to pre-war; inflation falls slowly but stays above 2.5%; Fed cuts rates once before year-end. Gold is wide-range fluctuation at high levels, below the January high of $5,598/oz.
- B: Leave War Logic, Return to Macro Easing — ceasefire or reopening in weeks, oil falls below $80 in Q3, PCE below 2.5%, Fed restarts easing (two 25bp cuts in Q3/Q4). Gold can switch to a “macro easing bull” like after 2003.
- C: Black Swan — Talks Collapse, Strait blockade continues for over 3 months, oil stays high, inflation expectations unanchor, Fed forced to tolerate inflation amid recession/inflation, real rates fall. Report reminds: In this scenario’s early stage, gold may first be suppressed by liquidity and high real rates; only as markets start trading “Fed yield” does gold enter the strongest phase, with largest possible upside, maybe retesting $5,500+/oz or breaking out.
The report’s operational implication is modest: short-term (next 1–2 months), don’t chase gold on days of geopolitical headlines; wait for signals like a gold-oil ratio turning point, TIPS retreat, ETF inflow turning point showing “pricing power shift.” Also gives more trading-oriented watch: If gold holds $4,200–4,400/oz in $100+/bbl oil environment, it starts to offer allocation value.
On a longer timeframe, it boils down to one line: whether gold can move from “risk-aversion” to “trend” ultimately depends on whether the Hormuz shock shifts from a price issue to a quantity constraint, and whether the Fed moves from holding to releasing rate-cut signals. War is just the starting point — the macro determines the ending.
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