The Tug of War in Gold

The price of gold initially rose following the February 28 outbreak of armed hostilities in the Middle East as investors flocked to perceived “safe havens.” However, the metal has subsequently declined—losing nearly 3% from March 2 to March 11—even as other “safe haven” assets, most notably the US dollar, continued to rally.¹ History suggests this volatility amid tumultuous conditions is not atypical.

With a near-total shutdown of shipping traffic through the Strait of Hormuz—through which approximately 20% of global oil and liquified natural gas (LNG) passes—Brent crude oil prices spiked to nearly $120 per barrel on March 9, highlighting the potential global inflationary impact of this conflict.² In response, options markets have reined in their expectations for 2026 federal funds rate cuts, and the resulting higher-for-longer policy rate scenario has pushed real interest rates higher, a classic headwind to the gold price.³ The rebound in the US dollar, an effective unwind of the popular dollar-devaluation trade, has further constrained gold.⁴

Technical factors also may be adding incremental price pressure. Investors in search of liquidity in the face of market stress often look to an easily salable asset like gold, and its performance of late makes profit taking particularly enticing. Gold has more than doubled in price over the past two years and is still up 20% year to date despite its volatility over the past week-plus.⁵

While there are multiple factors that could continue to weigh on gold in the near term, we continue to view the potential for recession as the key risk. Even though recessions historically have been positive for gold over the medium to long terms, their onset can be a short-term negative, as we most recently saw during the brief but sharp Covid-related recession in 2020 and the 2008–09 recession associated with the global financial crisis. In both instances, however, gold’s value as a potential hedge against adverse events ultimately reasserted itself after an initial period of price weakness.⁶