Since the escalation of the Iran situation on June 13, the gold market has shown relatively muted performance. To understand the unusual movements in gold prices and forecast potential “breakout” paths, it is necessary to clarify the underlying logic of gold’s safe-haven appeal and analyze the influence of geopolitical struggles on the gold market.
1. Gold Price Decline Amid Iran Crisis and the “See-Saw” Effect with Oil Prices
Since June 13, as the geopolitical situation evolved, there was a noticeable divergence between gold and oil prices, triggering the market’s attention to the phase of a “see-saw” effect.
Oil prices have been more sensitive to geopolitical risks, continuing a short-term upward trend.
At the beginning of the conflict (June 13), WTI oil rose by 7.26% to $72.98 per barrel, and Brent crude rose by 7.02% to $74.23 per barrel. By June 23, Brent crude reached a high of $79.04 per barrel, the highest in nearly five months.
Gold only experienced a brief pulse at the onset of the conflict, and then came under pressure. On June 13, the London gold price increased by 1.24%, touching $3444.5 per ounce. However, it gradually retreated to the $3350 range, with a cumulative drop of about $100, showing an overall volatile trend.
To understand the unusual movements in the gold market since mid-June, we attempt to explore from two angles.
From a historical perspective, geopolitical risks triggering political conflicts should typically benefit both oil and gold.
To clarify the current “abnormal” performance of gold, we will discuss two factors: (1) the underlying drivers of gold’s safe-haven demand this year and (2) the key transmission mechanisms of geopolitical risks on the gold market.
2. Understanding the Underlying Drivers of Gold’s Safe-Haven Appeal: Shifts in Global Capital Flows
In the first half of this year, the surge in gold’s safe-haven demand was directly influenced by changes in global capital flows, reflecting the impact of tariffs on the global market, ultimately showing up as a “reverse dollar credit” phenomenon.
Post-pandemic, the fiscal narratives of major economies reversed, profoundly affecting global capital flows. This shift caused a vibration in global asset risk preferences and catalyzed the expansion of “de-dollarization” trading.
In Q1, global carry trades reversed, and risk assets followed suit. Global capital began flowing out of U.S. stocks, with some funds seeking safe-haven investments. By March 2025, the three-month return difference between the S&P 500 and gold reached 22%, the largest gap in two years.
In Q2, as the trade war intensified, the de-dollarization narrative began to spread. Concerns over “stagflation” and the vulnerabilities of U.S. credit assets led to a typical asset allocation of short-dollar credit assets (such as U.S. Treasury bonds and the dollar) and long-token assets (such as gold and Bitcoin).
3. Can Geopolitical Conflicts Serve as a Catalyst for Sustained Gold Price Increases? The Key Lies in Two Mechanisms
Different geopolitical events have varied potential impacts on gold and the broader macroeconomic background, and the transmission mechanisms of geopolitical conflicts to the gold market are complex. Quantifying the effects of geopolitical risks is not an easy task.
Historically, purely looking at geopolitical conflict events, their supporting role for gold prices is not sustained.
For example, during the 2020 U.S.-Iran missile standoff, gold prices briefly spiked but quickly retreated. Similarly, during the 2023 Israel-Hamas conflict, gold rose more than 5% at the start of the conflict but entered consolidation as tensions eased. Similarly, in the current conflict, gold only saw gains on the first day of the escalation.
The key to whether geopolitical risks can become a catalyst for sustained gold price increases lies in two underlying mechanisms:
- The actual supply constraints caused by political order conflicts, which shift macroeconomic factors such as inflation, driving gold prices higher.
- A significant change in capital flows, leading to outflows from equity and bond markets, which could push gold prices higher.
The classic historical examples where geopolitical conflicts triggered gold and oil prices rising in tandem include the two oil crises of the 1970s and the 2020 Russia-Ukraine conflict.
4. Understanding Gold’s “Abnormal” Performance: Geopolitical Struggles Have Yet to Become the Main Driver of Macro Asset Pricing
The oil market has reacted more directly to potential supply disruptions, and it is easy to understand the amplified volatility in oil prices.
With the escalation of the Iran conflict, Iranian oil exports (about 1.6 million barrels per day) were directly limited, and maritime transport faced similar uncertainties.
The direct supply shocks led to a correction in the earlier expectations of oil surplus in the first half of the year. The previously declining oil prices (WTI oil once approached shale oil’s equilibrium cost) rebounded, showing enhanced price elasticity.
However, as the geopolitical situation remains unclear, global inflation expectations remain anchored in the short term. Asset pricing has not yet shifted towards geopolitical struggles. Capital flows have not shown sustained changes, and gold’s safe-haven demand has not been significantly strengthened, which is the main reason for gold’s continued oscillation.
As the U.S. gets involved, the likelihood of Iran’s plan to close the Strait of Hormuz (responsible for 20% of global oil transportation) has decreased, and global inflation expectations remain stable.
Since mid-June, global capital flows have remained relatively stable, and gold, as a safe-haven asset, lacks a clear driver, continuing to follow the overall oscillating trend seen in gold markets since May.
On June 13, when the conflict intensified, both U.S. stocks and U.S. bonds declined, triggering an increase in gold’s safe-haven demand and a corresponding gold price spike. However, after June 16, U.S. stocks and bonds stabilized, and gold lacked capital flow momentum, leading to a weaker market performance.
5. Forecast for Gold Prices in the Second Half of 2025
Looking ahead, the key drivers for gold in the second half of the year may shift, and the market’s next movements may depend on the catalysts of “recession trades” and liquidity easing.
From the current situation, if a ceasefire agreement with Iran becomes more likely, the risk of further escalation of geopolitical tensions seems relatively controlled. If the geopolitical situation doesn’t escalate further, gold’s next movements may hinge more on factors outside of geopolitical tensions.
In the base case, if trade frameworks gradually become clearer and uncertainties in the financial system decrease, the drivers for gold in the first half of the year may no longer apply in the second half. Gold’s catalysts in the second half may need to wait for “recession trades” accompanied by liquidity easing.