Gold: Remain Long-term Constructive
The elephant in the room: The Iran War. The ongoing Iran War has had a significant impact on the economic landscape, most notably through rising energy prices. As energy costs increase, inflation is ...
Chief Investment Office - Hong Kong20 May 2026
  • The Iran War has driven up energy prices, increasing inflation and gold volatility
  • Gold’s safe haven status depends on the Iran War resolution and Strait of Hormuz reopening; a protracted conflict seems likely for now
  • As such, gold has been trading as a risk asset recently, though we do not believe this shift to be permanent
  • Early signs of stabilisation have emerged following March’s price crash
  • Long-term outlook for gold remains strong as de-dollarisation and monetary debasement narratives continue to gain momentum
Article image
Photo credit: Unsplash
Read More

The elephant in the room: The Iran War. The ongoing Iran War has had a significant impact on the economic landscape, most notably through rising energy prices. As energy costs increase, inflation is pushed higher, which in turn reduces the likelihood of interest rate cuts. This environment has revived the inverse relationship between gold prices and real rates, which has contributed to a temporary downward pressure on gold. Since the onset of the conflict, gold has experienced considerable volatility with prices dropping by approximately 12% in USD terms in March—a decline that marks the worst monthly performance for gold in over a decade.
Real rates surged post-Iran War; re-coupling with gold prices

Does this mean gold is no longer a safe haven? The answer to this question largely depends on how the Iran War unfolds. If a resolution is reached soon and the Strait of Hormuz reopens, the risk of runaway inflation would diminish, easing the downward pressure on gold prices. Conversely, if the conflict persists and the strait remains closed, the world may face a "stagflation-lite" scenario where growth concerns and inflation risks rise together. At the time of writing, a quick resolution appears elusive. Under such conditions, gold may not benefit as higher inflation coupled with elevated interest rates will dampen consumer demand for gold (especially in jewellery and fabrication) and increase the opportunity cost of holding a non-yielding asset.

The mixed effects of inflation on gold. Historically, gold has performed well when inflation was very high (>8%), confidence in the monetary stability was poor, and real rates trended in the low/negative territory, such as in the 1970s. However, when inflation ran moderately high (between 4% and 8%) and central banks could credibly tighten monetary policy, gold often underperformed as real yields spiked (e.g. 2013 taper tantrums, 2018, and 2022).

Therefore, the relationship between gold and inflation is not simply a linear relationship where rising inflation automatically translates into higher gold prices. A more accurate conclusion is that gold performs well when inflation is high and confidence in monetary stability is simultaneously low.
Gold tends to underperform during periods of moderately high inflation
Note: Calculations are based on annual gold returns and US CPI y/y from 1971 to 2025


Download the PDF to read the full report which includes coverage on Credit, FX, Rates, and Thematics.

Topic

Disclaimers and Important Notices

The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.

The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.

The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.

DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.

To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.

The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.