CITIC Securities Overseas | US-Iran Conflict: Why Isn't Gold Price Increasing?

(Source: CSC Research Overseas & Macro Asset Team)

After the US-Iran conflict, gold prices fell sharply, which can be understood from four perspectives:

1. Historical experience shows that after geopolitical conflicts erupt, gold prices generally perform weakly, with declines being the norm. Price increases are more likely to occur before conflicts break out.

2. The hedging effect of gold against US stocks is not as strong as imagined. In fact, in recent years, gold prices have shown a high correlation with US stocks. Under the current decline in US stocks, holding gold does not provide protection.

3. In the short term, the rise of the US dollar index and US Treasury yields also puts some pressure on gold prices.

4. Gold experienced sharp rises and falls at the beginning of the year, with volatility soaring to historical highs. Currently, volatility remains significantly higher than the mid-point of last year, and short-term market sentiment has some reservations about it.

Since the long-term narrative has not been disproven, after a correction, the market still tends to be bullish. When considering entry points later, three factors should be monitored:

1. Referencing the historical maximum decline of gold prices after the Iran-Iraq war, there may still be about 5% room for adjustment.

2. US stocks stabilize, laying the foundation for overall market sentiment recovery. Possible scenarios include: US stocks bottoming out after a sharp decline, or signals of conflict easing.

3. Gold volatility continues to revert to normal levels, indicating that the market no longer worries about short-term large swings.

Gold has been one of the most outstanding assets over the past year and is widely regarded as an excellent safe-haven asset and a beneficiary in the reshaping of the global landscape. However, since the outbreak of the US-Iran conflict, gold prices have fallen more than 10%. How to understand the recent weakness of gold?

(1) Historical experience shows that after geopolitical conflicts erupt, gold prices tend to perform poorly, with declines being common. Price increases are more likely before conflicts.

Contrary to intuition, geopolitical conflicts are not necessarily catalysts for rising gold prices. Reviewing major conflicts related to the Middle East, the results show that one month before conflict outbreaks, the probability of gold price increases is higher, with an average gain of nearly 4%. However, within three months after the conflict, gold prices show high variability, with no clear upward trend, and the probability of decline within one month is higher, with an average decline.

Examining the trend over periods also reveals similar features: gold prices tend to rise before conflicts and enter consolidation afterward. For conflicts more closely related to the Middle East, such as the Iraq War, overseas wars, Iran-Iraq War, Russia-Ukraine War, etc., the probability of gold prices falling after conflicts is higher. For example, after the Iran-Iraq War, gold prices once declined by as much as 15%.

The reasons may include two points: first, after war erupts, overall risk appetite drops sharply, and liquidity shocks may occur, leading to gold being sold off; second, gold prices have already risen before the conflict, and positive news follows the outbreak.

(2) The hedging effect of gold against US stocks is not as strong as imagined. In recent years, gold prices have shown a high correlation with US stocks. Under the current decline in US stocks, holding gold does not provide protection.

Historical correlation between gold and the S&P 500 shows that around 2013-2015, they maintained a long-term negative correlation. However, over the past decade, this negative correlation has largely disappeared, gradually shifting to a positive correlation, especially in 2025, where the correlation approached 1. This means that during major risks in US stocks, gold does not serve as an effective hedge. The decline in US stocks and global markets after the US-Iran conflict may also be a reason why gold prices are not being catalyzed.

The underlying logic may also stem from liquidity perspectives: when equities decline, overall liquidity tightens, and selling gold may be a means to obtain liquidity.

(3) In the short term, the rise of the US dollar index and US Treasury yields also exerts some pressure on gold prices (though not necessarily the main logic).

Although traditional dollar and interest rate dynamics cannot fully explain gold movements over the past few years, they still have some influence within specific short-term windows. Recently, the dollar index has risen significantly, and US Treasury yields are near previous highs, exerting clear bearish pressure on gold under traditional frameworks.

(4) Gold experienced a sharp rise at the beginning of the year, with volatility soaring to historical highs. Market sentiment toward gold may have some reservations in the short term.

Gold was one of the most volatile assets at the start of the year, with volatility reaching record highs. Although it has since declined, it remains significantly above the end of last year, indicating that the market still has mixed views on its future trajectory. Under the conflict environment, overall risk appetite is weak, and market attitudes toward gold are cautious.

(5) Future outlook: Re-entering gold positions can focus on three factors

Since the long-term narrative for gold has not been disproven, the medium-term market remains inclined to be bullish. While maintaining caution in the short term, potential entry points can be monitored by tracking three factors:

First, referencing the maximum historical decline of gold after the Iran-Iraq War, there may still be about 5% downside room.

Second, US stocks stabilize, laying the groundwork for overall market sentiment recovery, which may require signs of conflict easing.

Third, volatility continues to revert to normal levels.

Source:

Research Report Title: “US-Iran Conflict: Why Isn’t Gold Rising?”

Publication Date: March 19, 2026

Published by: CITIC Securities Co., Ltd.

Analyst: Qian Wei

License Number: S1440521110002