Middle East Tensions Drive Gold, Dollar & Bitcoin Surge

Geopolitical tensions in the Middle East are driving investors toward safe-haven assets, following weekend strikes by the United States and Israel within Iran and the reported death of Supreme Leader Ali Khamenei. These events have amplified fears of a wider conflict and potential disruptions to oil flows through the Strait of Hormuz, triggering a flight to gold and the U.S. Dollar. Bitcoin, a more volatile asset, has also seen appreciation amid the uncertainty, according to international press reports.

Gold’s Appeal as a Traditional Hedge

The price of gold rose yesterday, reflecting a classic risk-off move triggered by the geopolitical shock, coinciding with declines in European equities and a surge in oil prices. This bolstered demand for gold as a store of value. As of 6:30 PM Romanian time yesterday, the spot price of gold stood at approximately $5,315 per ounce, up 0.5% from Friday’s close and nearing its historical high of $5,595 per ounce reached in late January, data from Investing.com shows.

Analysts at ING suggest that a regional escalation of the conflict or disruptions to energy supplies would significantly boost gold prices, driven by rising oil prices, increased inflation expectations, and sustained low real yields. “A regional escalation of the conflict or disruption to energy supplies would significantly boost gold, through higher oil prices, increased inflation expectations and keeping real yields at low levels,” ING analysts wrote in a note, as reported by Investing.com.

Michael Brown, senior strategist at brokerage Pepperstone, believes markets must now account for a wider range of potential outcomes given the ongoing military actions, making accurate risk assessment exceptionally difficult. “This wider range predictably makes accurate risk assessment extremely difficult, if not impossible, leading to a ‘reduce exposure now, ask questions later’ approach for most market participants,” Brown said, as quoted by Investing.com.

Dollar Strength Amidst Uncertainty

The U.S. Dollar has also benefited from the increased risk aversion. The Dollar Index, which measures the value of the U.S. Currency against a basket of six major currencies, rose 0.85% to 98.45 points as of 6:30 PM Romanian time yesterday, reaching its highest level in five weeks, according to Investing.com data. This suggests investors are currently prioritizing the dollar as a safe haven.

ING analyst Chris Turner noted that until investors gain clarity on the conflict’s duration, the dollar is likely to remain strong, as reported by Barrons. The dollar has faced headwinds in the past year due to investor shifts towards alternative safe-haven assets like gold and increased allocations to foreign markets, particularly emerging markets.

However, the United States’ abundant domestic energy resources provide a degree of insulation from rising oil prices spurred by Middle East disruptions. The key question for the Federal Reserve, and therefore for dollar strength, is whether higher energy prices will complicate its path toward potential interest rate cuts. Higher interest rates generally support the dollar by increasing the yields on U.S. Debt and other dollar-denominated assets.

David Morrison, senior market analyst at Trade Nation, argues that the dollar’s strength is a strong indication that it remains the primary safe-haven currency for investors, and those anticipating further weakening due to dedollarization may be premature.

Inflationary Pressures and the Fed’s Dilemma

Rising oil prices are also adding to inflationary pressures and potentially limiting the Federal Reserve’s ability to lower interest rates. The Producer Price Index (PPI) in the U.S., released Friday and exceeding expectations, has reignited concerns about persistent inflation even as the economy shows signs of slowing. This creates a difficult policy dilemma for the Fed, which risks re-igniting inflation if it cuts rates too soon or further slowing the economy if it maintains restrictive monetary policy.

“The upside momentum in the dollar may be limited by stagflation fears,” Morrison said, as quoted by Investing.com. “The U.S. PPI release…rekindled fears of persistent inflation even as the economy shows signs of slowing. This creates a difficult monetary policy dilemma for the Federal Reserve.”

Cryptocurrency Response and Long-Term Outlook

Cryptocurrency prices experienced a slight increase yesterday evening following a weekend decline. Bitcoin, the world’s most well-known cryptocurrency, was trading at $69,463, up approximately 5% as of 6:30 PM Romanian time, whereas Ethereum gained 4.6% to $2,065, according to Investing.com data.

Economic analyst Aurelian Dochia commented that while some believe Bitcoin may benefit from the situation in Iran as investors seek safe-haven assets, he doesn’t view Bitcoin as a true safe haven. “Notice opinions that Bitcoin may return in this situation in Iran and in the attempt to find safe-haven assets, but Bitcoin has never seemed to me to be able to play the role of a safe haven. But people’s reaction is influenced by subjective, emotional factors,” Dochia stated.

Central Bank Demand and Gold’s Structural Support

Gold has risen nearly 25% this year, supported by geopolitical risks, central bank purchases, and expectations of monetary policy easing by the Federal Reserve, following a strong 65% gain last year. Central banks have doubled their gold purchases to over 1,000 tonnes annually since Russia’s invasion of Ukraine in 2022. In December 2025, China held over 2,300 tonnes of gold, equivalent to approximately 8.5% of its total reserves at that time, according to reports from late January of this year.

ING analysts believe that even if tensions stabilize, the structural factors supporting gold – solid central bank purchases and expectations of monetary policy easing – suggest that any declines will be limited and corrections will likely be shallow, without reversing the upward trend. “This reinforces, rather than changes, the overall favorable outlook for gold. Central bank purchases remain solid, and expectations of monetary policy easing later this year continue to support the market. Even if tensions stabilize, these structural factors suggest that declines should be limited, and any corrections will likely be shallow, without reversing the trend,” ING analysts stated, according to Investing.com.

Pepperstone’s Michael Brown identifies $5,400 per ounce, followed by the record high of $5,595 per ounce reached in late January, as key levels to watch for gold’s continued upward trend. He also sees a potential move towards $6,000 per ounce by the end of the year. “Developments this weekend reinforce the solid fundamental arguments in favor of higher gold, which will continue to benefit from capital flows oriented towards safe-haven assets in an increasingly uncertain world, while strong demand from both retail investors and central banks also provides additional impetus,” Brown said.

The Pentagon has attempted to downplay concerns of a prolonged conflict, with U.S. Secretary of Defense Pete Hegseth stating that military operations against Iran will not lead to an “endless war” and that the objective is to destroy Tehran’s missiles, naval forces, and other security infrastructure elements.

Looking ahead, if tensions remain contained and energy flows are unaffected, the initial risk-off reaction is expected to subside as the oil risk premium diminishes. However, the underlying factors supporting gold – central bank demand and potential monetary easing – suggest continued strength in the market.