The Iranian Crisis & Rising Prices: Does Oil or Gold Offer Better Protection?
The current Middle East conflict between the United States, Israel and Iran, which has closed the Strait of Hormuz (where circa 20% of the world’s supply of crude oil and associated derivatives flow), has turned inflation predictions on its head. The Federal Reserve, the Bank of England, and the ECB, along with many other central banks, originally planned to cut interest rates in 2026. However, both the banks and financial markets are now predicting potential holds or even rate increases to combat rising inflation.
Oil
Experts advise that oil generally offers an immediate protection against rising inflation, especially during energy-driven price shocks like the one currently fueled by the United States/Iran/Israel conflict. Indeed, as a direct driver of inflation, oil and other energy related investments often spike during a crisis, providing strong returns and offering better, more direct protection than gold during times of rising inflation. However, analysts advise that investors need to take care, as during this current crisis the oil market has seen much volatility.
Gold
Common wisdom suggests that in times of crisis, investors flee to a safe haven such as gold, however, the current Iranian conflict has turned this assumption in its head. Indeed, since the start of the US invasion of Iran codenamed Operation Epic Fury on February 28th, 2026, Brent Crude has increased by 37%, whilst gold has retreated by 15%. Gold hit a historic all-time high of over $5,500 in January, before retreating below $4,400 by late March. Since that correction, it has regained ground and is currently trading between $4,710 and $4,730 per troy ounce.
On 28th January this year, gold hit an all-time high of $5,589 per troy ounce, one month before the start of the Iran conflict. This, according to many analysts, was due to rallying on the back of tariff uncertainty, central bank buying and exceptional demand for gold ETFs (Exchange Traded Funds). The fall in the price of gold as suggested by experts is primarily due to surging bond yields, a strong US Dollar and investors taking profits after the aforementioned massive rally in 2025. Experts in the gold arena suggest that many investors sold for liquidity purposes, resulting in a flight to cash rather than a flight to safe haven.
Analysts advise that the rise in bond yields have raised the “opportunity cost”* of holding non-interest bearing assets such as gold. Also, with inflation expectations roaring into view on the back of the current energy shock, government bond yields have spiked globally. The UK 10-year government bonds (Gilts) hit their highest level since 2008. A 15-year high was reached by German bunds, and the 10-year US Treasury recently enjoyed a number of highs and hit 4.38% on Friday before slipping back.
*Opportunity cost – The next best alternative investors give up when deciding whether or not to move out of one asset class and into another. It represents missed benefits when choosing one option over another.
Geopolitical Uncertainty and the Outlook for Peace
Just how long oil prices will remain elevated and gold prices depressed will largely depend on the current Middle East crisis ending as soon as possible. However, despite White House rhetoric, an agreement to end the war with Iran seems to be a long way off. With Israel increasing their attacks in Lebanon, and cargo ships still being attacked in the Strait of Hormuz, any peace plan put forward by the Americans may have little hope of receiving Iranian approval.
