Gold: Preserving Wealth in a Volatile World

Introduction

Geopolitical tensions rose dramatically on 28 February 2026 when the United States and Israel carried out coordinated military strikes on Iran under Operation Lion’s Roar. The strikes targeted several key military and strategic facilities. Iran responded quickly with missile and drone attacks across the Gulf region, including strikes on U.S. bases and infrastructure in several countries. The situation also created volatility in energy markets. One major concern is the Strait of Hormuz, a narrow but extremely important shipping route through which around 20% of the world’s oil supply passes. Any disruption there could lead to supply shortages and higher oil prices.

Events like this usually affect financial markets in two phases:

Phase 1 – Liquidity Shock

Right after a geopolitical shock, markets usually react with a broad sell-off. Investors often rush to reduce risk and raise cash. When equity markets fall, leveraged funds may face margin calls and are forced to sell their most liquid assets and recently profitable assets to meet them. This can include gold, which means even safe-haven assets may come under short-term pressure.

At the same time, conflicts can push oil prices higher. Rising oil prices can lift bond yields and strengthen the U.S. dollar. A stronger dollar and higher yields can temporarily limit gold’s upside. We can assume this is the reason gold hasn't rallied yet since the start of the war. Despite the gains in Dollar and yields, gold is holding strong, straying true to its definition of a safe-haven. In this early stage, markets are mostly reacting to short-term liquidity pressures rather than the long-term safe-haven appeal of gold.

Phase 2 – Safe Haven Repricing

Once the initial liquidity shock passes, markets usually move into a second phase. At this stage, investors begin to fully price in the geopolitical risks. Money slowly starts shifting toward defensive assets such as gold

History shows that gold often performs well during long periods of conflict and uncertainty.

One reason gold attracts demand during these periods is because it is not tied to the credit risk of any government or financial institution. This makes it a trusted store of value when confidence in currencies or financial systems weakens.

Wars often lead to higher oil prices, rising inflation, and increased government spending. These factors can weaken currencies and encourage institutional investors and central banks to increase their gold holdings. Because of this, gold has consistently acted as a global hedge against geopolitical risk, inflation, and currency volatility.

Central Banks Accelerate Gold Buying as Geopolitical Uncertainty Rises

Source: World Gold Council

The chart shows a sharp rise in central bank gold purchases over the past few years. After averaging roughly 450 tonnes annually between 2010 and 2021, purchases surged to over 1,000 tonnes from 2022 - 25. This reflects rising safe-haven demand amid geopolitical uncertainty and wars, a trend that may continue into 2026 as global risks remain elevated.

Gold vs Fiat Currencies: A Long-Term Store of Purchasing Power

Source: LBMA, U.S. Bureau of Labor Statistics, RBI.

Since the end of the gold standard in 1971, gold has maintained its purchasing power better than fiat currencies, notably the dollar. Gold prices have risen from about $35 per ounce in 1971 to nearly $5,200 today, reflecting its long-term role as a store of value. As can be observed in the above chart, in the same period, the dollar lost approximately 83% of its value/purchasing power due to inflation while many of the currencies of emerging markets lost even more than that. The rupee has been one of them and has become significantly weaker against both the dollar and gold, over time.

The recent increase in geopolitical tension has also exposed the rupee's vulnerability. Within the span of two weeks, the rupee depreciated from around ₹90 per USD to almost ₹93 per USD. For expats, looking to safeguard against rupee depreciation, gold can be a great option.

Gold Replacing Bonds as the Market Hedge

Source: LBMA, U.S. Bureau of Labor Statistics, RBI.

Recently, gold has also increasingly replaced bonds as a hedge against equities. The traditional negative correlation between bonds and stocks has weakened, and both asset classes now often move in the same direction. In this environment, gold is gaining importance as a portfolio hedge, offering protection against equity volatility, inflation, and geopolitical risks.

Outlook:

Gold has long been seen as a reliable store of value, especially during times of geopolitical tension and economic uncertainty. When conflicts last longer, inflation risks rise and currencies become unstable, investors often turn to gold for safety. In recent years, central banks have also been increasing their gold purchases, which has added further support to demand. Because of these factors, gold continues to play an important role as a strategic asset in uncertain and volatile global markets. Gold’s ability to hold its purchasing power over long periods is another reason why it remains attractive.