I answered questions from journalist Nils Adler on gold’s steadiness despite the Iran quagmire. In addition to quotes on Al Jazeera’s website, here is my broader analysis.
A geo-economic shock such as the disruption of the Strait of Hormuz would traditionally be seen as driving gold demand higher. However, structural factors have tempered its safe-haven appeal.
Flight to Liquidity, Volatility, and Market Psychology
During major crises, financial markets often experience broad stress, with assets across the board under pressure as investors seek liquidity and safety, particularly in the U.S. dollar and Treasuries. Even gold, historically a safe haven, can remain flat or decline when markets favor cash or liquid assets. This pattern has been evident as the Iran war escalated. Gold has stayed relatively stable rather than rallying sharply, despite extreme tensions. Paradoxically, it is the potentially systemic nature of this crisis that limits demand for gold, as other financial mechanisms play out.
In addition, the Federal Reserve’s stance remains decisive. Rising energy costs and persistent inflation reinforce expectations that interest rates may stay elevated, strengthening the dollar and making interest-bearing assets more attractive than non-yielding gold. This interaction suppresses bullion’s immediate appeal, showing how monetary policy interacts with geopolitical and structural financial risks.
Also, the gold market is increasingly shaped by speculative trading and heightened volatility, which can spook risk-averse investors. Rapid swings and profit-taking discourage accumulation, undermining gold’s role as a safe-haven asset. Pre-existing multi-year highs amplify this effect, preventing a full-scale flight into bullion. Speculative volatility can defeat gold’s short-term function.
Meanwhile, apart from bouts of systemic financial risks which can trigger flights to dollar liquidity, the geo-economic landscape will remain shaped by massive fragmentation, which support diversification efforts, including into gold over the longer term.
Protracted Stalemate, Escalation Risk, and Energy Shocks
The U.S. is faced with a strategic fiasco, as Donald Trump did not anticipate Iran’s response on gulf states and the strait of Hormuz. While he threatens to keep going up the escalation ladder, even his closest allies refuse to participate in high-risk, potentially suicidal, missions to escort tankers in the strait. The economic and political consequences pressure him to look for an escape strategy,
However, even in case of deescalation, cessation of hostilities and reopening of the strait, a long-term negotiated peace between US/Israel and Iran is now out of reach for the foreseeable future. The central scenario is a protracted stalemate, which prolongs regional instability and durably threatens the Gulf’s export reliability. The conflict cannot be seen as a mere short-term and limited event. It will have significant consequences on the global economy and the block logic.
Sanctions and Financial Fragmentation
The expanding scope of sanctions and the increasing use of trade policy as a tool of geopolitical coercion have contributed to a fragmentation of the global financial system, encouraging state institutions, banks, and multinational corporations to explore alternatives to dollar‑based mechanisms. Where once the dollar served as a relatively uncontested anchor for international trade and reserve holdings, the growing risk of exclusion from dollar clearing and finance has led policymakers in several regions to reassess their reliance on U.S.‑centric systems. The war in Ukraine illustrated how quickly the reliance on traditional financial instruments can shift. The outbreak of hostilities and the flow of sanctions coincided with a sharp rise in the price of gold, as investors and central banks sought perceived safe havens.
More recently, escalating trade tensions and competitive tariff strategies have prompted renewed diversification, whether through other currencies, gold and other commodities, or the development of regional payment systems. These dynamics suggest a broader reassessment of long‑standing assumptions about dollar dominance and raise questions about how economic policies will evolve in an era of intensifying geopolitical rivalry.
The Essence of Gold
Gold’s trajectory depends on the consequences of the Iran conflict, central bank responses, and the structural fragility of global finance. The muted price response to the Iran war confirms that gold does not always skyrocket during crises. Its enduring value lies in being a real, physical store of wealth, reflecting interactions among liquidity, sanctions, dollar dominance, interest rates, speculative volatility, and strategic uncertainty, rather than acting solely as a short-term panic hedge. Even under strong sanctions and geopolitical risk, gold’s primary role is preservation of wealth, not reactive price spikes.
This piece is published for analytical purposes and does not constitute investment advice.