Gold Ditches War for Inflation, Interest Rates as Market Dynamics Shift

Gold's traditional relationship with geopolitical conflicts is changing as inflation and monetary policy become more important drivers of bullion prices, according to a report by Motilal Oswal Financial Services Ltd (MOFSL). The first half of the year showed that geopolitical risks alone may not be enough to sustain a gold rally.

In its H1 2026 Precious Metals Report, MOFSL found that markets increasingly focused less on the geopolitical headlines themselves and more on their impact on inflation, real interest rates, and monetary policy expectations. Rising bond yields emerged as the key headwind for gold, outweighing traditional safe-haven demand despite elevated geopolitical tensions.

The report highlighted that the US-Iran conflict provided another example of this changing dynamic, where the initial escalation supported bullion demand, higher oil prices raised inflation concerns, and reduced expectations of monetary policy easing, limiting gains in gold and contributing to a correction.