Gold Goes to War: Does History Say It's Failed?

'Gold price fails Iran test!' say headlines. But investing history...?

AFTER the best year for gold investing since 1979, the price of the precious metal has now spiked and then tumbled as the US and Israel wage war on Iran.

Iran has struck back, crushing energy output across the Middle East, closing the vital Strait of Hormuz, and sending the global economy into a tailspin.

Oil and gas prices have leapt. Global stock markets have sunk with bond prices. Inflation expectations have jumped.

Yet gold − repeatedly framed as the ultimate all-weather 'safe haven' for investment portfolios − is now almost 15% lower since the war with Iran began, putting in the worst gold price crash since 2013.

Has gold failed this Iran War test?

"Gold's safe-haven status is failing its biggest test," says a Bloomberg columnist.

"The precious metal has not lived up to its billing as a geopolitical shelter," says another.

"Tumbling gold price puts 'haven' status in doubt," agrees the Financial Times.

But if investors now feel let down by gold, does history say that they were right to buy it as a hedge against war in the first place? 

 

 

This chart tracks the price of gold before, during and after 10 major conflicts across the past 50 years, including the Iran War of 2026 so far.

As you can see, gold has never performed so badly during the first 4 weeks of fighting as it has across March 2026.

But as you can also see, gold rose sharply ahead of today's Middle East war, gaining 23.9% from 1 month before. Gold had risen this fast only once before ahead of any of the wars in our chart, leaping by 25.6% in late 1979.

That was when CIA-backed Mujahideen rebels in Afghanistan attacked Soviet-backed government forces, spurring Moscow's invasion that Christmas.

Does gold always jump when war breaks out?

Let's take our lead from today's news-wire columnists, and assume that gold should act a 'safe haven' for investing dollars to rush into when death and destruction suddenly strike.

On that assumption, we might expect gold prices to jump on unforeseen attacks, but show little surprise when military action has been clearly telegraphed and anticipated. And that model would fit the most obvious examples.

Gold jumped 2.7% on 2nd August 1990, the day that Saddam Hussein shocked the world when Iraq invaded Kuwait. Gold then moved 0.0% on 20th March 2003, when the US-led invasion of Iraq finally began after months of debate and argument at the United Nations and in Congress.

However, the run-up to those wars didn't fit the pattern which our assumption might make. Instead, gold fell by 2.4% over the month of wrangling and preparation before Gulf War 2 began in 2003. In contrast, it had risen that much over the 30 days before the surprise of Gulf War 1 thirteen years earlier.

Here in 2026, and wherever you might put the Iran War on that spectrum of shock-and-awe, gold rose 23.9% over the 30 days prior to the US-Israeli air strikes of Saturday 28th February. That comes behind only the Soviet invasion of Afghanistan (up 25.6%).

Like that conflict starting on 24th December 1979, this war then saw gold rise as the news hit the markets (in this case, 2 days later, when trading opened on Monday 2nd March). But since then, gold has fallen back, breaking with the path of 1979 and showing a 1-month drop of 13.6% on Friday, 27 March 2026.

How does gold perform on average when war breaks out?

More broadly, and taking the average of all 9 historical conflicts in our chart, the price of gold rose by 4.0% over the 3 months preceding these wars. Almost all of that rise (3.9%) came in the final month before the shooting began.

On the day that war broke out, gold then rose on average by 0.9%, and it rose another 0.2% on Day 2. By the end of the first week, the historic data in our sample say that gold prices rose 1.1% on average from the eve of these wars, and it showed a rise of 6.5% one month in.

So yes, judged on the average verdict of history, gold has indeed failed to perform during the 2026 Iran War to date.

But if we drill into the gold price data, the historic pattern of strong average gains following the start of a war comes almost entirely from 3 conflicts. And if we accept that political violence might not be the only thing which can impact the price of gold, these 3 counter-examples offer a useful contrast to the situation today.

Soviet Invasion of Afghanistan, December 1979

The US stock market rose as Russian tanks rolled across the border. So too did interest rates and the longer-term cost of borrowing in the bond market. That might suggest gold should have faced stiff headwinds from competing investment choices.

Thing was, however, inflation in the cost of living was running higher still − and the destruction of real value in cash and bonds cannot be ignored when we look at how the gold price spiked to record highs at New Year 1980.

Gulf War 1, August 1990

US inflation rose again as Iraq invaded Kuwait in summer 1990, spurring the USA to lead an alliance of Arab and Western nations in pushing back Saddam Hussein's forces.

This time, the yield on 10-year US Treasury bonds ran higher than inflation. But the gap actually shrank as the conflict began, reducing the real rate of interest and reducing the opportunity cost of holding non-yielding gold. The stock market meantime fell hard, losing 15% between the eve of Iraq's attack and the start of October.

It's hardly surprising that gold prices rose. But the First Iraq War rally proved short-lived, and as the 'long boom' in US stocks and bonds returned, the 'safe haven' went back to the long bear market which followed gold's big top of 1980.

7th October, 2023

The US stock market also fell after Hamas broke into Israel and slaughtered 1,200 soldiers and civilians, ending the month 3.2% lower with the S&P500 index's worst monthly loss since September the previous year.

Treasury bonds also sank in price, however, and that pushed the yield offered by 10-year debt up towards 5% per annum for the first time since before the global financial crisis began in 2007. With US inflation actually falling that autumn, it resulted in bond yields outrunning the cost of living by 1.5 percentage points, the strongest real rate of interest in almost a decade.

Yet gold thrived and kept rising, because − even as Western investors pulled money out of gold-backed ETF trust funds − investment demand from China continued to grow strongly, as did demand from central banks wanting to diversify their currency reserves. 

So Why Has Gold Sunk Since the Iran War Began?

In contrast to the late 2023 gold price gains, central banks have been widely rumoured to be selling gold since this new Middle East war erupted, rushing to raise cash for buying energy imports as well as defending their own currencies on the FX market.

Similarly for private investment gold flows, analysts and traders agree that 3 factors have driven gold prices lower during this crisis to date.

Margin calls

In periods of such sudden market stress, traders will liquidate winning positions to cover their losing bets on other assets. Precious metals offer big gains to tap after making their strongest annual rise since 1979. Gold now shows a further 5% gain year-to-date vs. a 6% drop in the US stock market.

Value at risk

The explosion in volatility means value-at-risk has leapt for all portfolios and trading books. So professional traders' positions have needed to be scaled back or shut, regardless of asset.

No interest rate cuts

Because gold pays no income, it's intuitive that bullion prices should struggle when interest rates rise. Market expectations have completely reversed thanks to the energy-price shock from this new war with Iran, creating a stiff headwind for non-yielding assets.

Simply put, gold and silver have been caught in the wider market panic since the US and Israel attacked Iran at the end of February, selling off as traders rush to cut losses and risk.

Losing 13.6% since the end of last month, gold is on track for its steepest monthly drop since June 2013 marked the lows of gold's historic price crash that spring. Volatility continues to run at the worst since the collapse of Lehman Brothers in 2008.

That second comparison is telling, because it challenges the common assumption that gold only goes up when crisis strikes. Gold fell during the panic phase of both the financial and Covid crises. But it went into those shocks with strong gains, and it then extended its underlying uptrend as other assets continued to fall.