In the first half of 2026, the global gold market experienced the most intense geopolitical pricing shock in nearly two decades.
On January 29, spot gold (XAU/USD) surged to a historic high of $5,595 per ounce during intraday trading. Less than a month later, prices quickly retreated to around $4,392 in early February. Following the official outbreak of geopolitical conflict in late February, gold entered a new phase of market dynamics. As of June 10, spot gold had fallen below the $4,200 mark, marking a decline of over $1,300 from its peak at the beginning of the year.
This price trajectory reveals a clear symmetrical structure: during the anticipation phase of geopolitical conflict, gold prices climbed to historic highs; once war actually broke out, the safe-haven logic temporarily faltered; and when ceasefire signals emerged, geopolitical risk premiums began to systematically dissipate. The "anticipation pricing—event realization—premium convergence" evolution seen in this round of gold trading provides the most comprehensive empirical sample in the past decade for quantitatively analyzing traditional geopolitical risk premium models.
Three-Stage Evolution of Gold Prices and a Retrospective Timeline of Geopolitical Events
In the first quarter of 2026, gold price movements can be understood through three distinct stages: the anticipation pricing stage, the event realization stage, and the premium convergence stage.
The first stage dates back to early January 2026. At that time, nuclear negotiations between the US and Iran had reached a stalemate, and expectations for military conflict in the Middle East were rising. Against this backdrop, gold—long viewed as a traditional safe-haven asset—was the first to react in pricing. In a forward-looking analysis, Natixis noted that if the US and Iran went to war, gold prices could rise to the $5,500–$5,800 range within two weeks of conflict breaking out. The market’s anticipation pricing mechanism swiftly incorporated this possibility into asset valuations. On January 29, spot gold hit its historic high at $5,595, with the 52-week range for the entire market stretching from $3,248 to $5,595—a period of extreme volatility.
It’s worth noting that the $5,595 peak occurred before the outbreak of war, not after. This phenomenon highlights a key pricing characteristic of geopolitical risk premiums: the market tends to assign the highest risk premium during periods of maximum uncertainty and least information, rather than at the height of conflict intensity.
The second stage began in late February 2026. According to multiple reports, on February 28, the US and Israel launched a joint military strike against Iran, with Tehran, Isfahan, and other cities coming under air attack. Iran’s Supreme Leader Khamenei was killed during the operation. In response, the Iranian Revolutionary Guard launched counterattacks, firing missiles and drones at US military bases and Israeli targets in the Middle East. The war entered a phase of sustained confrontation, and by early June, had lasted 100 days with no clear end in sight.
The intensity of the event itself was undoubtedly immense. However, from the perspective of gold’s actual performance, prices did not continue their upward trend after the outbreak of war. In fact, several analysis reports pointed out that the turning point occurred precisely at the end of February—when military conflict suddenly escalated, gold faced bearish pricing. Soaring oil prices heightened inflation expectations, prompting markets to abandon bets on rate cuts and even price in the possibility of at least one rate hike before year-end. Gold fell by over 10% in March alone, marking its worst monthly performance since June 2013.
The third stage is the gradual dissipation of geopolitical risk premiums. After March, despite ongoing military conflict, the market began to focus on the possibility of peace talks. Some analyses noted that signals of negotiation appeared around March 24, leading to a sharp drop in oil prices and a rebound in gold after its earlier steep decline. Subsequently, as more signs of easing emerged—including Iran and Israel agreeing to halt attacks after a phone mediation by Trump—safe-haven buying in gold cooled off in phases. Meanwhile, rising real yields and a stronger US dollar created a double headwind for gold. In early June, spot gold fell below the $4,200 mark, erasing nearly all gains for the year.
Quantitative Breakdown of Geopolitical Risk Premiums
The three-stage evolution described above provides a clear framework for quantitatively analyzing traditional geopolitical risk premiums. The so-called traditional geopolitical risk premium refers to the portion of asset prices—especially gold—that compensates for risks beyond conventional fundamentals during major geopolitical conflict events. This premium typically arises during periods of heightened geopolitical tension and gradually dissipates as conflicts break out or become more predictable.
It’s important to note that extensive academic research has confirmed a significant risk spillover effect between geopolitical risk and the gold market. Empirical analyses show that risk spillovers among energy, forex, and gold markets are asymmetric—volatility transmission from extreme negative shocks far exceeds that from positive shocks, and long-term risk spillovers dominate market linkages. This means that geopolitical risk premiums are essentially asymmetric and persistent pricing factors.
Based on price data from the first half of 2026, we can use the following quantitative framework to measure the generation and attenuation of this round’s geopolitical risk premiums.
Basic parameter settings:
This article uses the monthly average gold price for December 2025 as the benchmark. Assume the benchmark price range is between $4,100 and $4,300 (which also aligns with the price level after gold fell below $4,200 in June 2026). On this benchmark, the total premium can be estimated by subtracting the benchmark price from the peak price.
Peak price: $5,595
Benchmark price: approximately $4,150
Total peak premium = $5,595 - $4,150 ≈ $1,445
This total premium can be further broken down into three components:
Structural premium (about $500–$600): This portion stems from sustained central bank gold purchases, the deepening trend of de-dollarization, and long-term pricing of US dollar credit risk. Multiple institutional reports noted that much of gold’s surge in 2025 reflected the potential impact of Trump’s policies on dollar credit and global trade order. This premium remained relatively stable before and after the outbreak of war and was not systematically diminished by the Middle East conflict.
Inflation expectation premium (about $300–$400): This portion arises from supply-side shocks in crude oil translating into higher terminal inflation expectations. After the outbreak of war in Iran, concerns about disruptions to shipping through the Strait of Hormuz pushed up oil prices, which in turn elevated global inflation expectations. ING’s analysis explicitly stated that the escalation of the US-Israel-Iran conflict injected "fresh geopolitical risk premium" into gold.
Pure geopolitical risk premium (about $400–$500): This is the core variable in the quantitative framework, generated entirely by uncertainty in the Middle East. Its characteristic is that it peaks during periods of maximum uncertainty and rapidly diminishes as predictability increases.
Why Did Risk Premiums Fall After the Actual Outbreak of Conflict?
This is the most paradoxical phenomenon in this round of gold trading and is key to understanding traditional geopolitical risk premium models.
Traditionally, the severity of geopolitical conflict and gold prices are expected to be positively correlated—the more intense the conflict, the higher the demand for safe-haven assets, and thus higher gold prices. However, after the outbreak of war at the end of February 2026, gold prices moved counter to intuition.
To explain this, we need to introduce the "event realization effect." The core of geopolitical risk premium pricing is not the actual destructive power of the conflict, but the market’s anticipation of future uncertainty. In the weeks or even months leading up to the outbreak, persistent safe-haven expectations had already pushed gold prices to historic highs. In other words, gold had already priced in the most pessimistic scenarios during the anticipation phase. When conflict actually occurs, uncertainty transforms into certainty—while war does happen, the market now has key information about the scale, scope, and responses of the parties involved. This shift from "unknown uncertainty" to "known risk" often triggers profit-taking by speculative long positions.
Some analysts summarize this phenomenon as "risk is priced in ahead of the event": gold prices rise to highs on safe-haven expectations before war breaks out, and once fighting begins, speculative capital takes profits, causing prices to fall.
Additionally, changes in inflation expectations driven by soaring oil prices played a significant role after the outbreak of conflict. The market began to reassess the Federal Reserve’s monetary policy trajectory. Early June 2026 non-farm payroll data triggered a single-day plunge in gold prices of $145.59, the largest daily drop of the year. Rising real yields and a strengthening dollar combined to create a double headwind for gold.
Model Validation: Historical Patterns as Reference
This round of trading is not an isolated event. Historical data show that gold price trends during geopolitical conflict events follow repeatable patterns.
Institutions have distilled three core rules from historical data: first, the gains in energy commodities during conflicts are directly correlated with the degree of actual supply chain disruption; second, the elasticity of safe-haven assets (gold, silver) is limited, with historical gains of only 1%–2% and rapid digestion of sentiment; third, the impact of conflict lasts no more than 10 trading days, and geopolitical risk premiums quickly dissipate in the absence of substantial supply interruptions.
Looking at a broader time scale, the 1979 case is particularly instructive. After the Soviet invasion of Afghanistan, gold prices saw a dramatic surge—from around $475 to nearly $600. Subsequently, under the combined impact of the Iran hostage crisis and other geopolitical upheavals, gold soared from about $104 to $850 over three and a half years, a gain of more than $700.
However, this round differs significantly from past cases. The scale of conflict is much larger—involving direct military confrontation among the US, Israel, and Iran, and lasting over 100 days. Yet gold’s safe-haven elasticity is actually lower than during historical local conflicts. This reflects a structural shift in gold pricing mechanisms: the influence of geopolitical factors on gold prices is being diluted or even offset by macro variables such as interest rate expectations, the US dollar exchange rate, and inflation expectations. In its latest June report, Citi lowered its three-month target price for gold from $4,300 to $4,000, noting that current pricing is being tugged between monetary policy and geopolitical risk.
Conclusion
The gold market in the first half of 2026 provides a complete empirical sample for traditional geopolitical risk premium models.
Looking back at the price trajectory, the historic peak of $5,595 was primarily composed of structural premium ($500–$600), inflation expectation premium ($300–$400), and pure geopolitical risk premium ($400–$500). However, this premium structure was rapidly reconfigured after the actual outbreak of war. As the conflict moved from anticipation to realization, reduced uncertainty prompted concentrated profit-taking by speculative long positions. Meanwhile, changes in inflation expectations driven by soaring oil prices led the market to reassess the Federal Reserve’s rate path, and the double headwind of rising real yields and a stronger dollar further squeezed gold’s safe-haven value.
As of June 10, spot gold prices had fallen below $4,200, erasing nearly all gains for the year. This does not mean the structural long thesis has been disproven. Underlying factors such as sustained central bank gold purchases and deepening de-dollarization remain intact. However, this round of trading reveals a critical shift: as the macro policy environment moves from easing expectations to tightening pricing, the short-term impact of geopolitics on gold prices is systematically declining.
For market participants, evaluating gold’s future trajectory requires considering three sets of variables: the evolution path of geopolitical developments, the actual direction of Federal Reserve monetary policy, and those structural variables in traditional geopolitical risk premium models that remain influential. Gold’s logic as a safe-haven asset hasn’t fundamentally changed, but its pricing mechanism is being reshaped by deeper macroeconomic factors.
