As tensions escalate across the Middle East and crude oil prices surge past $100 a barrel, global markets are witnessing a puzzling divergence. Oil has jumped sharply on fears of supply disruptions, yet gold — traditionally the world’s most trusted safe-haven asset — has struggled to mount a comparable rally, hovering near the $5,000-per-ounce level instead of surging decisively higher.
The contrasting movements highlight how modern financial markets are responding to geopolitical shocks in a more complex way than in past crises.
Oil’s rise has been driven primarily by real supply risks. The conflict has disrupted shipping routes around the Strait of Hormuz — a critical energy corridor through which about 20 per cent of global oil shipments pass. Even temporary disruptions to this route can rapidly tighten global supply, pushing prices sharply higher. Analysts warn that the current crisis could represent one of the most significant disruptions to energy markets in decades, with millions of barrels of oil supply potentially affected.
Gold, however, is being pulled in different directions by macroeconomic forces that are limiting its safe-haven surge.
One major factor is the strength of the US dollar. During global crises investors often rush into both gold and the dollar, but this time the greenback has attracted stronger flows as investors seek liquidity in US assets. A stronger dollar makes gold more expensive for buyers using other currencies, reducing international demand.
Adrian Ash, director of research at bullion marketplace BullionVault, says the divergence is not unusual during financial stress. Investors sometimes sell profitable positions in gold to raise liquidity while simultaneously moving into the US currency.
Another major constraint on gold prices is the outlook for interest rates. Rising oil prices are increasing fears of persistent inflation, which could force central banks to keep borrowing costs higher for longer. That dynamic is particularly relevant for the United States, where markets are closely watching policy signals from the Federal Reserve.
Higher interest rates tend to weaken gold’s appeal because the metal does not generate income. As bond yields rise, investors often prefer interest-bearing assets such as government bonds rather than holding non-yielding bullion. Analysts say expectations that rate cuts may be delayed have therefore capped gold’s gains even as geopolitical risk rises.
Strategists at Morgan Stanley note that while geopolitical uncertainty typically supports safe-haven assets, the current environment is more complicated. In a recent research note, the bank’s analysts said gold’s price action has been “more mixed with US dollar strength” offsetting some of the safe-haven demand.
Another reason the rally has been muted is that gold is already trading close to historic highs after a powerful run over the past year. Prices have risen nearly 20 per cent this year following an extraordinary surge in 2025, meaning much of the geopolitical risk may already be partly priced into the market.
Investor behaviour has also evolved. While gold remains a traditional refuge during crises, global investors today often diversify their safe-haven strategies. Instead of moving entirely into precious metals, they frequently spread funds across multiple defensive assets including US Treasury bonds, cash and the dollar.
This diversification has diluted gold’s automatic response to geopolitical shocks.
However, analysts note, the underlying demand for gold has not disappeared. The metal continues to hold firm near the $5,000 mark, a psychologically important level that traders see as a key support zone. Safe-haven buying remains present but is being balanced by macroeconomic headwinds.
Long-term fundamentals also remain supportive. Central banks around the world have been steadily increasing their gold reserves in recent years as part of efforts to diversify away from traditional reserve assets and reduce exposure to currency volatility.
Many analysts believe gold could still stage a stronger rally if the crisis intensifies further. A deeper disruption to global trade routes, a broader financial market sell-off or a weakening US dollar could quickly reignite safe-haven demand.
They argue that the divergence between oil and gold reflects two different market dynamics. Oil is surging because the conflict threatens actual energy supply, while gold’s trajectory is being shaped more by the interplay between interest rates, inflation expectations and currency movements.
Until those macro forces shift, the precious metal may remain steady rather than explosive — even in the face of escalating geopolitical tensions, they say.
