Will gold prices resume an upward trend following the ceasefire?

Gold prices might retain their safe-haven status in the long run, even as the conflict drags on amid the risk of stagflation from high energy prices.

Gold faced significant pressure following the Middle East hostilities. Surging oil prices heightened global inflation risks, particularly in Asia, where imports from the Middle East account for approximately 80% of its oil supply. In this article, I examine the key drivers behind gold’s recent volatility, assess how the ceasefire has reshaped market dynamics, and evaluate whether gold can regain its upward momentum in the current macroeconomic and geopolitical environment.

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While the US also faces impact from this conflict, its vulnerability remains markedly lower than in previous cycles. As the world’s largest oil producer, the US economy's energy dependence on external sources has decreased significantly compared to the era of the 1979 oil crisis. Consequently, the US dollar emerged as the preferred safe-haven asset amid escalating tensions. Conversely, gold prices moved inversely to the US dollar index and oil, temporarily losing short-term safe-haven status.

Three primary factors drive this phenomenon:

• Central bank liquidity management: Several major central banks sold their gold reserves to balance FX positions under the pressure of rising net energy imports or to fund war-related expenditures.
• Liquidity squeezes: As leveraged positions in risky assets faced liquidation, investors sold gold to cover margin calls. This recurring pattern characterizes initial "shock" phases in financial markets.
• Opportunity cost: Expectations that spiking oil prices would drive broader inflation solidified a "higher-for-longer" interest rate outlook, diminishing the appeal of non-yielding gold.

The impact of the ceasefire and fiscal pressures

Following the 8 April announcement of a two-week US-Iran ceasefire, gold prices rebounded sharply, climbing above 4,800 USD/troy ounce (a daily gain of more than 4%). Simultaneously, oil prices plunged 11–13%, and the US dollar index softened. Markets now question whether this momentum will sustain once the news of the ceasefire is fully priced in.

Current US fiscal health suggests a complex outlook. With the US debt-to-GDP ratio exceeding 122%, prolonged Middle East involvement could drive defense spending toward 1.5 trillion USD annually, increasing public expenditure by over 1%. Furthermore, the Federal Court’s recent rejection of President Donald Trump’s reciprocal tariffs policies may necessitate tax refunds, creating immense fiscal strain. These factors could pressure the US to seek an early exit from the conflict.

USD debt-to-GDP ratio and current inflation. Source: Exness.com

Geopolitical fragility and supply disruptions

Despite the US intentions, Israel maintains a hardline stance toward Iran. Even if the US reduces its involvement, regional skirmishes likely continue. Given the time required to negotiate lasting terms, the risk of reignited conflict remains high.

Moreover, recent hostilities have caused structural damage to energy and industrial infrastructure in the Gulf, including the attack on Ras Laffan, which accounts for 17–20% of global LNG supply, and may take 4–5 years to fully recover. Meanwhile, attacks on Saudi Arabian oil facilities and the world's largest aluminum plant are likely to keep oil, LNG, and aluminum prices elevated regardless of a ceasefire, which might influence other sectors.

Long-term outlook: The case for gold

Persistent inflationary pressures, combined with a 3–6 month lag in economic growth data, point toward a risk of a mild recession in the Eurozone and the UK, alongside a growth slowdown in the US and Asia if oil prices remain elevated.

As upcoming GDP and Core CPI releases reflect these realities, market sentiment toward gold should shift. We expect gold to maintain a strong bullish trajectory, supported by four structural drivers:

1. De-dollarization: A continued shift away from the US dollar-denominated reserves.
2. Central bank accumulation: Resumed net purchasing by the central banks.
3. US sovereign debt risk: Concerns over the sustainability of the US fiscal deficits.
4. Global stagflation: Simultaneous risks of stagnant growth and high inflation.

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Final thoughts

In my view, the recent pullback in gold should be seen as a temporary dislocation rather than a structural shift. While short-term dynamics—such as a stronger US dollar and liquidity pressures—can weigh on prices, the broader macro backdrop remains favorable to gold.

Looking ahead, I believe the combination of persistent inflation, rising sovereign debt, and ongoing geopolitical uncertainty will reinforce gold’s role as a long-term store of value. Even in a post-ceasefire environment, the underlying drivers of volatility and stagflation remain intact. For these reasons, I expect gold to resume its upward trajectory as markets begin to fully price in these structural risks.

Disclaimer: The information presented in this article is for informational purposes only and should not be considered financial advice or a definitive market outlook. Market conditions are inherently dynamic and subject to change, particularly in response to unforeseen geopolitical, economic, or policy developments. As such, the analysis and views expressed are not guaranteed and should not be relied upon as the sole basis for investment decisions. Traders and investors are strongly encouraged to conduct their own research and consider their individual risk tolerance before making any financial commitments.

Frequently asked questions

Will gold prices rise after the ceasefire?

Gold prices may continue to recover after the ceasefire, but the rally’s sustainability depends on factors such as US dollar strength, oil prices, and interest rate expectations.

Why did gold fall during the geopolitical conflict?

Gold declined initially due to a stronger US dollar, liquidity-driven sell-offs, and rising interest rate expectations, which increased the opportunity cost of holding non-yielding assets.

What is the gold price outlook for 2026?

The gold price outlook for 2026 remains bullish, supported by structural factors such as central bank buying, de-dollarization trends, rising global debt, and persistent inflation risks.