Is War Good or Bad for Gold (XAUUSD)? The Trading Truth About Gold in Times of Conflict

The simple answer is yes… gold often shines brighter when the world goes dark. But before you load up on XAU/USD at the sound of every missile launch, remember that this isn’t just about economics. 

It's about the psychology of fear, the dance of central banks, the chessboard of geopolitics, and the rhythm of global markets. 

Not all wars fuel a gold or USD rush. Some deliver short-lived spikes; others shock investors by pushing gold sideways or even down.

In this deep dive, we’ll cut through the noise to uncover when conflict truly benefits gold, when it doesn’t, and how you can position yourself smarter during turbulent times. Get ready for a trader’s guide to war, risk, and the real gold story.

Gold (XAU/USD) prices have historically surged during major wars, reflecting the metal’s role as a safe-haven asset amid geopolitical uncertainty.

From the fixed prices of World War I and II ($20.67–$35/oz) to the post-1971 era, when the end of the gold standard unleashed market-driven spikes, wars like Vietnam, the Gulf War, Iraq, Russia-Ukraine, and the 2023 Israel-Hamas conflict consistently drove prices upward, often by 5–10% at the onset. 

For instance, gold jumped from $1800 to over $2000/oz in 2022 during the Russia-Ukraine invasion and hit ~$3500/oz in April 2025 amid Israel-Iran tensions, before easing to $3322.22/oz after a ceasefire. 

These trends highlight gold’s sensitivity to global conflicts, making it a critical asset for investors navigating turbulent times.

Why Gold Rises in Conflict: Understanding the “Risk-Off” Effect

In trading, not all market reactions are about logic many are about emotion. That’s what “risk-off” truly represents: investors running from uncertainty toward safety.

And when geopolitical tensions rise whether it’s a missile strike, an invasion, or rising tensions in oil-producing regions gold tends to be the first-place capital hides.

1. Investor Psychology: The Flight to Safety

This is the primary driver. During armed conflicts, especially those involving key economic or oil-producing regions like the Middle East, Eastern Europe, or the Taiwan Strait, fear takes over.

Stock markets sell off. Risk assets are dumped. Nobody wants to hold equities in a region where businesses could be bombed tomorrow. 

Currency volatility spikes. Oil prices usually surge, adding inflation pressure.

And amidst all this chaos? Traders and institutions pile into gold.

Unlike stocks or bonds, gold doesn’t depend on earnings, dividends, or interest rates. It’s not a claim on a government it’s a claim on stability. 

This psychological shift toward safety, especially amplified through instruments like ETFs, futures, and CFDs like XAUUSD, causes gold prices to rise rapidly during early conflict stages.
So basically when headlines start to shift from diplomacy to escalation and market sentiment flips to “risk-off” watch for the gold buys. The earlier you spot this sentiment shift, the better your XAUUSD entry. 

2. Currency Impact: Dollar Down = Gold Up… But Only Sometimes

Gold is traded globally in U.S. dollars, so the relationship between the greenback and gold is pivotal.

In wartime, if the conflict undermines confidence in the U.S. or global trade, the dollar (DXY) can weaken. 

This makes gold cheaper for non-dollar buyers, lifting demand and prices. We saw this after U.S. involvement in the Middle East intensified. 

But here's the twist: in some crises, the dollar itself becomes a safe haven. If the U.S. is seen as a stable force in a chaotic world, the dollar strengthens. 

And when that happens, gold may stall or even dip unless inflation or real interest rates fall. 

Don’t trade gold in isolation track DXY (U.S. Dollar Index) and U.S. bond yields. A falling dollar with rising global fear? Bullish for gold. 

A rising dollar due to U.S. safety premium? Gold might need another tailwind, like inflation or rate cuts.

3. Inflation Hedge: War Means Spending, and Spending Drives Gold

Wars are expensive. Governments print money, increase military budgets, and often disrupt supply chains especially for oil (WTI) , metals, and food. These forces combine to fuel inflation.

And gold? It’s the traditional hedge against inflation.

When markets believe, a war will lead to prolonged fiscal spending or energy disruptions (as we saw in Ukraine or 2023–2025 in the Middle East), inflation expectations rise and so does gold demand.

This effect compounds if central banks hold back from hiking rates during war, fearing economic slowdown. That’s when real yields (interest rates minus inflation) turn negative a sweet spot for gold bulls.

Always watch inflation expectations (like breakeven or CPI data), oil prices, and central bank tone. If war + inflation = rising fear of stagflation, gold is often the clear winner. So ongoing gold would be a valid setup!

Understanding gold’s behaviour during geopolitical conflict requires more than reacting to headlines.

 It demands a framework a disciplined lens to assess when war truly fuels a risk-off environment and when the market is already priced for panic. 

1. Assessing the Global Impact: Scope, Geography, and Stakes

The first and most critical factor is understanding the magnitude and reach of the conflict. Not every war is created equal in the eyes of the market. Traders must ask: Does this conflict threaten global economic structures, key trade routes, or energy supply chains? 

Wars involving superpowers (U.S., China, Russia) or affecting chokepoints like the Strait of Hormuz (yellow circle on the image below) or Taiwan Strait are far more likely to produce sustained gold rallies than localised skirmishes or civil unrest. 

For instance, the Russia-Ukraine war didn’t just trigger panic due to the invasion it disrupted global energy supplies, introduced widespread sanctions, and rattled the EU economy. 

That multi-dimensional impact made it a gold-bullish event for a prolonged period. In contrast, conflicts like the Armenia-Azerbaijan standoff moved gold very little, as global exposure was minimal.

Whenever a war breaks out, immediately evaluate whether the world cares economically not just politically. 

If oil, global GDP, or major currencies are at risk, gold is more likely to move significantly and stay elevated.

2. Understanding the U.S. Dollar and Real Yields

Gold and the U.S. dollar have a complex, often inverse relationship. Since gold is priced in dollars, a weaker dollar typically boosts gold prices making it cheaper for non-U.S. investors. 

But the key driver isn’t just the dollar itself it’s real interest rates.

Real rates (nominal rates minus inflation) determine the opportunity cost of holding gold. When real rates are low or negative, gold becomes more attractive as it yields no income but protects purchasing power. 

During wars, especially ones that trigger inflation or recession fears, central banks may pause rate hikes or even cut causing real yields to fall.

Always keep an eye on U.S. 10-year bond yields alongside CPI and inflation expectations. 

If real yields dip into negative territory while conflict heats up, gold often finds strong upward momentum. Pair this with a weakening dollar, and you have the ideal risk-off setup.

3. Inflation Expectations: The War-Investment-Inflation Chain

Wars almost always bring inflation risk. Governments spend massively on defence, aid, and stimulus. If the conflict disrupts key supplies (energy, wheat, shipping lanes), input costs surge across the board. 

This combination fuels inflation, even before central banks react.

Gold is historically one of the most reliable hedges against inflation. But what traders often miss is that it's not just actual inflation it’s the expectation of it that moves gold first.

 If the bond market starts pricing in rising inflation due to war spending or commodity bottlenecks, gold typically responds before the first CPI report even lands.

Follow oil and natural gas prices, shipping indexes (like the Baltic Dry Index), and break-even inflation rates. If markets are beginning to expect higher inflation even without confirmation gold usually gets bid early. 

These are ideal entry signals, especially when paired with dovish central bank tones.

War moves markets but not always in the way you’d expect. Gold, as a historic safe haven, thrives in times of fear, inflation, and financial uncertainty. 

But successful gold trading during conflict isn’t about reacting to every headline it’s about understanding the deeper mechanics of risk-off behaviour, inflation expectations, currency dynamics, and investor psychology.

From the trenches of World War I to the oil-shaking tensions of the Middle East in 2025, history teaches us that gold moves not only on conflict itself, but on how that conflict disrupts the global economy, weakens fiat currencies, and alters central bank trajectories.

When markets brace for uncertainty, gold becomes not just a metal but a message.

Armed with this framework, you can now evaluate each geopolitical event through a trader’s lens: Is this a localised flare-up or a systemic shock? 

Is the market genuinely afraid, or already numb? Are real yields falling while inflation rises?

These are the questions that shape whether gold rallies, flatlines, or retreats.

Don’t chase war-driven gold spikes blindly. Instead, map out the macro drivers, follow the money, monitor sentiment, and align your technical.

In the world of XAUUSD, the most profitable trades come not from fear but from understanding fear better than everyone else.

Q: Does war always cause gold prices to rise?

A: Not necessarily. While gold often rallies in the early stages of conflict due to panic and safe-haven demand, the actual price movement depends on the war’s global impact. Localised skirmishes may barely move the needle, while wars involving global trade routes or oil producers often spark stronger, sustained rallies.

Q: What does “risk-off” mean and how does it impact XAUUSD?

A: “Risk-off” is a market condition where investors flee volatile assets and seek safety often due to geopolitical fear or economic uncertainty. In these moments, gold (XAUUSD) shines because it represents stability. Traders dump equities and buy gold, pushing prices up quickly.

Q: How does the U.S. dollar affect gold during wartime?

A: Gold and the U.S. dollar usually move in opposite directions. If a war weakens confidence in the U.S. economy or global trade, the dollar can fall boosting gold. But in some conflicts, the dollar acts as a safe haven too. In those cases, gold may stall unless inflation or real interest rates decline.

Q: What role does inflation play in gold’s wartime rallies?

A: A big one. Wars lead to increased government spending and often disrupt supply chains fuelling inflation. Gold is a traditional inflation hedge. When markets expect rising inflation, especially before CPI confirms it, gold tends to rally. Pair this with dovish central banks, and gold demand strengthens.

Q: How can traders tell if a war will be bullish for gold?

A: Ask three key questions:

1. Does the war threaten global markets or key commodities (like oil)?
2. Is inflation likely to rise from spending or disruption?
3. Are real interest rates falling?
   If the answer to any of these is “yes,” then gold could be poised to climb.

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.