Gold and Geopolitics: How Wars and Trade Conflicts Move the Price

Most people know about gold’s role as a safe-haven asset or a crisis commodity. During periods of political instability or economic crises, investors flock to gold to protect their wealth. But why is that?

In this blog, we unpack gold’s relationship with geopolitics, looking at why gold prices rise during crises, historical examples of how gold has reacted to conflict, and situations where geopolitics may not have an effect on gold prices.

Key drivers of gold prices

Before we get into how geopolitics affects gold prices, it’s important to understand the four main drivers of gold prices:

1. Global uncertainty and sanctions

Global instability creates increased demand for safe haven assets like gold, which helps increase prices. We saw this during the COVID-19 pandemic in 2020, when gold recovered quickly and rallied while stock markets crashed.

This happened again during the Russia-Ukraine war. When Western nations imposed heavy financial sanctions on Russia, it created a wave of economic uncertainty. Investors rushed to buy physical bullion as a way to shield their wealth, driving up its demand and therefore price.

2. Trade disputes and tariffs

Trade wars tend to have a negative effect on stock markets, but they can be great for gold. When major economies start imposing import tariffs, it creates inflation and slows down economic growth, helping support gold prices.

For example, in early 2025, the US threatened a wave of new tariffs. This sparked a historic gold rally as investors sought out a safe-haven asset, leading gold to push past the $3,000/oz mark.

3. Interest rates and inflation

Gold is widely viewed as being a hedge against inflation. When the purchasing power of money drops, people move their money into hard, physical assets like gold or other precious metals.

Interest rates also play a role. Higher interest rates usually make gold less attractive, since gold doesn’t pay interest or dividends. But when inflation is higher than the interest rate you can get from a bank (known as negative real interest rates), investors actually lose money by holding cash or bonds. In this situation, gold becomes especially appealing because it holds its value.

4. Central bank buying

Central banks purchase gold on an enormous scale. In 2025 alone, central banks bought 863 tonnes of gold. This was down 21% from the record-breaking levels seen between 2022 and 2024 (which exceeded 1,000 tonnes annually), but still significantly higher than the 2010-2021 historical average of 473 tonnes.

Much of this demand comes from nations wanting to diversify their reserves away from US dollars, especially after seeing how easily foreign currency reserves can be frozen by sanctions. Because central banks buy gold in such massive quantities, their constant demand creates a reliable price floor for the entire gold market.

Keep Reading: What Drives the Price of Gold?

The relationship between gold and geopolitics

The term ‘geopolitics’ describes the shifting relationships between different countries. When two countries have a positive geopolitical relationship, they’ll engage in trade, sign agreements and treaties, and generally avoid conflict.

But when these relations deteriorate, the countries might limit or weaponise trade, impose tariffs, or threaten military conflict. This can affect gold prices in three different ways:

1. Supply chain disruptions: When relations deteriorate between major economic powers and gold-producing relations (like China or Russia), the producing nations might limit their gold exports. If supply is suddenly cut off, while global demand remains constant or increases, gold’s spot price is forced upwards.
2. Risk of armed conflict: If geopolitical relationships get really strained, it could lead to armed conflict. To fund war efforts, governments might engage in heavy deficit spending, print currency, and borrow capital, all of which can cause inflation and devalue the local currency. Gold, on the other hand, retains its purchasing power during inflationary periods, which means it often becomes more valuable.
3. General instability and uncertainty: Even if geopolitical friction doesn’t lead to an armed conflict, the mere idea of it can make investors fearful. When this happens, they’ll often shift their capital away from volatile stocks and into safe-haven assets like gold. This increase in demand naturally drives gold prices higher.

Why gold prices rise during conflict

Now that we’ve seen that gold responds positively during a crisis, it’s time to ask why. What is it about gold that makes it act like a shield during periods of uncertainty and conflict?

Gold has no counterparty risk

Every standard financial asset you can buy, whether it’s a bond, currency, or stock, carries an implicit promise from a counterparty. If you hold a government bond, you’re relying on that government to stay solvent and pay you back. If you have cash in a bank, you’re relying on that bank not to collapse. This is known as counterparty risk.

Gold has no counterparty. It doesn’t rely on a company, bank, or government to keep its promise. It’s a physical, neutral store of value that exists completely outside the banking system. This characteristic of gold becomes especially valuable during geopolitical conflict because that’s precisely when counterparties tend to fail.

After the First World War, for example, nearly every major European country defaulted on its debts, including highly trusted nations like Britain. Gold, however, continued holding its value because it didn’t depend on any government.

Sanctions can’t freeze central bank gold reserves

Unlike everyday investors, central banks don’t buy gold to profit from price appreciation. They buy it to protect themselves should their foreign currency reserves ever become frozen or inaccessible. This is a very real risk during periods of geopolitical conflicts.

In 2022, for example, Western nations froze $300 billion of Russia’s foreign exchange reserves held in overseas banks, showing central banks around the world that any wealth stored in foreign currencies could be wiped away in an instant.

On the other hand, physical gold holdings stored in domestic vaults cannot be hacked, frozen, or blocked by foreign sanctions. This is why central bank gold purchases have been so supercharged in recent years.

Read More: Why Central Banks Buy Gold

The flight from risky assets

Seeing war or geopolitical tensions on the news often leads investors to panic-sell volatile assets like stocks, corporate bonds, and emerging market currencies. They then allocate more of their investment portfolios to safe-haven assets like gold, US Treasuries, the Swiss franc, or Japanese yen.

Gold often outperforms here, because as we learned above, these other safe havens are still tied to the stability of a government (counterparty risk). For example, if a crisis directly involves the United States, bonds can actually fall.

Economists measure investor fear using what’s called the Geopolitical Risk (GPR) Index, which tracks how often conflict-related terms appear in global newspapers. Research shows that a 100-unit spike in geopolitical risk correlates with a 2.5% increase in gold’s return.

It’s worth noting that this premium isn’t permanent – the market often prices in expectation and fear rather than reality. Once a war breaks out and the initial shock wears off, the fear premium often fades. This is why investors who buy gold on conflict headlines often see short-term losses when the immediate narrative shifts.

The connection between oil and gold

Many of the world’s geopolitical crises happen to involve oil-producing nations, such as the Middle East or Russia. When conflict threatens to disrupt global oil supplies, energy prices rise and spark fears of higher inflation. As a result, investors flock to gold to protect their purchasing power.

This link between oil shock and gold prices explains why major historical events, like the 1990 Gulf War and tensions in early 2026, both triggered simultaneous rallies in both crude oil and physical gold.

Historical examples: How gold prices react to conflict

Now let’s go back and observe how gold prices have historically responded to periods of conflict. From these examples, we can see that the severity and duration of a gold rally depends on a conflict’s overall economic impact rather than the initial fear and headlines.

The Gulf War (1990)

When Iraq invaded Kuwait in 1990, crude oil prices more than doubled, surging from $17 to $41 a barrel. Because of the direct threat to global energy supplies, inflation fears sent gold spiking 19% from $350 to $417 per oz in just a few weeks.

The rally eased as soon as a US-led coalition stepped in and signaled a swift military response. The panic subsided, the war ended, and gold gave back almost all its gains within six months.

The lesson here was that short, localised conflicts usually result in temporary spikes in gold’s price. If the underlying economic machinery of the world isn’t permanently disrupted, the fear premium fades quickly.

September 11 attacks (2001)

In 2001, terrorist attacks in the United States forced US stock markets to shut down for a week. In the days after, gold jumped 8% from $271 to $293 per oz. Over the next few months, the rally extended all the way to $330 per oz.

Unlike the Gulf War, however, this rally wasn’t short-lived. The attacks led to a long-term ‘War on Terror’, and to protect the economy, the Federal Reserve aggressively cut interest rates to historic lows of 1%. This effectively kickstarted gold’s 10-year bull run.

Annexation of Crimea (2014)

When Russia annexed the Crimean Peninsula in 2014, gold rose 12%, climbing from $1,241 in March to $1,385 in April as the world awaited the potential breakout of a broader European war.

But the conflict remained largely contained, with Western nations responding with limited, targeted sanctions. The panic eventually melted away and by November, gold was trading back down at $1,200 per oz. This reinforces the pattern seen during the Gulf War – contained regional conflicts tend to only trigger brief gold rushes unless they cause global economic strain.

US-Iran tensions (2020)

In 2020, the US military assassinated Iranian General Qasem Soleimani. Worries over an Iran War and potential shutdown of the Strait of Hormuz sent crude oil higher and pushed gold up 6% in a single week.

However, Iran’s military retaliation was relatively measured and dissipated the threat of an all-out war. As a result, gold prices drifted back down. This case shows us how the market always prices in the absolute worst-case scenario, then re-prices downward as soon as the immediate danger passes.

Russia-Ukraine War (2022)

In 2022, Russia launched a full-scale invasion of Ukraine, sending gold rallying 15% in a month, jumping from $1,800 to $2,070 per oz.

This event fundamentally changed the structure of the gold market. The West froze $300 billion of Russia’s foreign bank reserves, leading central banks worldwide to realise that their paper currency holdings weren’t safe. This triggered a massive, multi-year sovereign gold-buying spree that has completely redefined the price floor for gold.

The 2025-2026 bull run

Over the last two years, we’ve seen escalating multi-front conflicts in the Middle East combined with aggressive global trade wars, tariff hikes, and persistent supply deficits. As a result, gold went on the most explosive run in its history, peaking at an all-time high of $5,597 on January 29, 2026.

Following that historic peak, the market experienced a natural and healthy correction. By mid-2026, Middle East tensions have cooled slightly and the Federal Reserve has signaled higher interest rates. Gold has now recovered from its most recent price rally and is now trading in a stable $4,000 per ounce range.

How gold moves during geopolitical conflicts

One of the main things to understand about gold and geopolitics is this: gold often rises in anticipation of a conflict rather than during the actual fighting. Most geopolitical gold rallies follow a predictable pattern:

1. The anticipation: As tensions mount, emotional and reflexive safe-haven buying triggers a sharp initial spike.
2. The event: Once the conflict actually begins, gold often experiences a sharp drop that same day. This might feel counterintuitive, but it’s because the market had already priced in the worst-case scenario ahead of time.
3. The retracement: The price partially retraces as traders lock in profits and markets realise the conflict might stay contained.

That said, if the conflict escalates or causes lasting economic damage (like blocked trade routes or long-term sanctions), the fade stays shallow and gold establishes a new, higher baseline.

Do geopolitics always affect gold prices?

Not every major crisis will send gold prices skyrocketing. There are three situations where the gold market might not react to geopolitical headlines at all:

1. Dollar flight dominance: If a crisis breaks out overseas but doesn’t threaten the stability of the U.S. financial system, global capital will often rush into US Treasuries instead of gold. Because of their inverse relationship, a higher dollar often suppresses gold prices.
2. Monetary policy override: If a central bank keeps real interest rates high, it heavily increases the opportunity cost of holding gold, which doesn’t provide a yield. So even during an active conflict, high real interest rates can cap gold’s price appreciation.
3. Swift resolution pricing: If the market calculates that a conflict will be resolved quickly, the risk premium dissolves instantly. This creates sharp downside corrections for investors who panic-bought gold right at the initial spike.

See More: Is There a Correlation Between the US Dollar and Gold Prices?