Everyone expected gold to surge when the bombs started falling.

After all, it’s a safe haven in times of crisis, right?

Well, most of the time, yes. But sometimes things take a while to play out.

When the U.S. and Israel attacked Iran, we did see the expected spike in oil prices. Yes, we saw petroleum surge around 25% on Monday to their highest mark since mid-2022, with Brent crude on track for a record one-day gain, while gold fell 2%.

Since Operation Epic Fury began, gold futures have dropped roughly 2.7%... even as the geopolitical stakes keep rising. If gold is supposed to be the ultimate safe-haven asset, what gives?

The answer lies in something most investors don’t fully appreciate: Yes, gold has a relationship with inflation. But as relationships sometimes are, it’s complicated.

While gold is often viewed as a hedge against inflation, oil-driven inflation shocks historically tend to lift Treasury yields and support the U.S. dollar, while also reducing expectations for a near-term interest rate cut.

And that’s the trap gold finds itself in right now.

Here’s the chain of causation we saw play out over the first week of the Iran War:

Meanwhile, gold tends to be more attractive when interest rates are low. This is because gold doesn’t kick off interest or dividends, anyway. When interest rates go up, so does the opportunity cost of holding gold. The longer you hold it, the more interest you give up.

Today, investors are increasingly expecting the U.S. Federal Reserve to hold rates steady at its two-day meeting on March 18. The odds of a June rate cut have fallen from roughly 50% last week when the war began down to approximately 30% by Monday, according to CME Group’s FedWatch tool.¹

At the same time, U.S. 10-year Treasury yields climbed to a one-month high, further increasing the opportunity cost of holding non-income-generating assets like gold.

That’s the mechanical explanation, anyway.

There’s also a human one.

As UBS analyst Giovanni Staunovo noted, “Historically, it is not uncommon to see gold falling as the first reaction when financial markets show stress signs as gold is a highly liquid asset.” When panic sets in, investors sell what they can — and gold is easy to sell. As Bob Haberkorn, senior market strategist at RJO Futures, put it: “The move lower in gold appears to be driven by a flight to liquidity — a flight to cash. We have a strong dollar and bond yields trading higher.”

Mohamed El-Erian — chief economic adviser at Allianz and one of the most closely watched macro voices on the planet — is not mincing words.

“A lot will depend on the duration and the spread of the conflict,” El-Erian told CNBC. “The more it spreads, the more stagflationary it is for the global economy.”
El-Erian described the Iran war as “yet another shock to a global economy that has so far proven extremely resilient,” but warned that “the cumulative effect of these disruptions is a fresh potential bout of stagflation blowing through the global economy.”

Stagflation — rising inflation combined with slowing growth — is the Federal Reserve’s worst nightmare.

El-Erian noted that stagflation risk is higher because of “limited” policy flexibility from the Federal Reserve, as inflation has remained above the Fed’s preferred 2% target for five consecutive years. Former Treasury Secretary Janet Yellen echoed that view last week, saying, “I think the recent Iran situation puts the Fed even more on hold, more reluctant to cut rates than they were before this happened.”

The U.S. economy shed 92,000 jobs in February, missing the consensus forecast of a 50,000 increase. The unemployment rate rose to 4.4%. Slowing employment plus resurging inflation is precisely the combination that leaves the Fed paralyzed — and gold in an awkward position.

Also, data came out last week showing the U.S. economy shed 92,000 jobs in February, missing the consensus forecast of a 50,000 increase. The unemployment rate rose to 4.4%. Slowing employment plus resurging inflation is precisely the combination that leaves the Fed paralyzed — and gold in an awkward position.

The historical record on gold and oil shocks is not always “gold wins.” At least in the short run. The outcome depends entirely on whether the oil shock turns into embedded inflation, or resolves before the Fed loses control.

We have two big oil shocks in recent memory to draw lessons from: The 1973-74 oil crisis and the 1979 Iran crisis.

During the 1973–74 Arab oil embargo, global crude prices tripled — rising roughly 300%, from $3 to nearly $12 per barrel. Gold climbed approximately 80% over the same 14-month period, from around $107 per ounce in October 1973 to a peak of roughly $193 in late 1974. Oil outpaced gold by a wide margin.

The embargo lasted only six months, the shock was sharp but ultimately resolved, and — though U.S. price controls masked part of the inflation signal domestically — markets eventually concluded the Fed had things under control for the time being. Gold rose meaningfully, but did not keep pace with energy prices over the following few years.

The 1979 Iranian Revolution produced a completely different outcome. From January 1979 to its peak in January 1980, gold surged approximately 290% — from around $217 per ounce to $850 — dramatically outrunning oil’s own significant gains of roughly 150% over the same period. Gold didn’t just react to a supply shock. It is priced in a failure of monetary policy itself.

The difference was structural. By 1979, inflation was already entrenched at double digits, the Federal Reserve had lost credibility after years of behind-the-curve policy, the dollar was in sustained decline, and cascading geopolitical shocks — the Soviet invasion of Afghanistan, the Iran hostage crisis, the Iran-Iraq War — all these reinforced the sense of institutional breakdown. Enter President Carter’s “Malaise” speech.

There was no obvious circuit breaker.

Until Carter appointee Paul Volker showed up.

Volker got critical support from the newly-elected President Ronald Reagan, who raised the federal funds rate to approximately 20% in 1981 and crushed inflation — and gold with it. Gold peaked in January 1980 and fell sharply once the Federal Reserve had reestablished its credibility. Though they did so at the cost of a terribly painful recession.

The lesson for today: gold’s long-term outperformance in an oil shock is not automatic. It depends on whether inflation becomes entrenched and whether the Fed retains the credibility and flexibility to respond.

In 1973, it did. In the 1979 crisis, it eventually took Paul Volker taking a sledgehammer to the money supply to get things under control.

Oil's Monday session offered a condensed version of the entire analytical problem: Brent crude briefly touched $119.50 per barrel in the morning — its highest since markets were rocked by Russia's invasion of Ukraine in 2022 — before tumbling nearly 10% from its settle price after Trump signaled the operation was nearing completion. CNN Post-settlement trading pushed futures toward $80 a barrel. Bloomberg In one afternoon, oil traveled the distance between two different historical outcomes.

If Trump's comments prove accurate and the war ends within days, 2026 starts to look more like 1973 than 1979 — a sharp, brief shock that resolves before inflation becomes embedded. The Fed retains room to maneuver. The dollar stays strong. Gold stays range-bound. Some professional investors are already suggesting that drops in stock prices could ultimately offer buying opportunities, and that the acute shortage of oil will be reversed in the coming months as new supply comes online.

But things aren’t all hunky-dory. Tanker traffic through the Strait of Hormuz has plummeted to near-zero from normal levels of 20–25 ships per day — ships that carry roughly 20% of global seaborne oil.

And whatever the Trump Administration says, experienced warriors know that “the enemy always gets a vote.” Iran’s offensive capabilities have taken a beating. But they still have anti-ship missiles, drones, and the capability of creating some significant disincentives to ship traffic chancing a run through the Strait.

Analysts at Société Générale warned that the longer disruptions persist, the greater the likelihood that what initially appear to be temporary outages evolve into more durable supply losses, and that the UAE may be the next producer at risk of shutting output. Inflation has already run above the Fed's 2% target for five consecutive years. The labor market was deteriorating before the first bomb fell.

The short-term oil retreat is genuinely good news — for consumers, for the Fed, and mechanically for gold, which has been suppressed by the dollar strength that an oil spike produces. But a two-hour price swing driven by a presidential phone call is not the same as a resolved conflict. The 1973 vs. 1979 question — the only question that truly matters for gold over the next six to twelve months — won't be answered by Monday's close. It will be answered by whether the Strait reopens, whether Gulf production recovers, and whether inflation expectations, which took years to become entrenched in the 1970s, have time to do the same now.

Spot gold has gained 19% this year, following a 64% surge in 2025. Monday's volatility didn't change that setup. It clarified the terms of the bet.

The question isn’t whether to own gold. The question is whether you own enough.

1. Rate-cut probability figures are highly sensitive to intraday data flows during periods of market stress. Different sources on March 9 cited June cut odds ranging from ~30% (FXStreet, CME FedWatch midday) to implied odds of ~49% (CNBC, earlier session). The 50%-to-30% decline directionally is well-supported across sources; the precise endpoint varied by several percentage points depending on the hour of measurement.

Until next time,

The Navigator