Unearthed: Navigating Gold's New Volatility Among Geopolitical Conflict

Welcome to Unearth, the podcast from the World Gold Council. I'm Joe Cavitone, alongside my co-host John Reed, and we're here to bring you everything you need to know about the gold market. And John, 2026 is looking like it's kicked off. Might be everything we saw in 2025, but then even more in terms of systemic events, moments in the market. We're obviously sitting here as we record this on the 3rd of March.

trying to assess how the conflict in the Middle East is going to impact the gold market. we had what we expected to see, which was an immediate, impressive rise in the gold price as a reaction to the conflict, but as we usually see in these types of conditions, the market settles down a little bit. It probably got priced into the moment, and now we're pulling back and falling into line to understand what the conditions might look like.

how issues around closing of the Strait of Hormos might impact different assets like oil and supply chains and really kind of what it's going to mean and how long it's going to be protracted in terms of conflict that could impact safe haven assets like gold. I think that's absolutely right, Joe. And the fact that we traded up to around about fifty five hundred dollars an ounce on Monday, and I've corrected at the time of recording to about fifty one fifty.

dollars an ounce. I certainly don't think that means that this is over in terms of gold moves associated with the Middle East conflict. I just think that investors and traders are settling down a little bit. after the initial shock. But it is interesting to speak to some people in the market about supply chain issues. Obviously Dubai is an important physical hub for global gold supply.

I was ballpark estimating this morning something like about twenty percent of physical flows in gold go through Dubai. Not much is consumed there itself, but it takes an awful lot of gold, particularly from artisanal and small scale gold mining. activities across Africa and that goal then ends up typically into the broader Middle East region and of course into India.

Speaking to my colleague Kavita Chako in India this morning, she said yes, we saw a jump in the Indian gold price on Monday, going from a fifty dollar discount to about flat. And of course it's closed today, so we'll have to see how that develops. But there are concerns about availability of gold in the immediate term in India because of the closure of flights from Dubai. Speaking to banks that are operating in the China market.

There seems to have been less of an impact there, but they do point out to me that it's difficult to get flights anywhere east of London at the moment if you're trying to go intercontinentally. Don't forget that the Dubai and Doha are both closed at the moment.

are probably the biggest international flight hubs out there at the moment. So there's considerable disruption that's taken place to the global gold supply chain. Having said that though, I don't think it's going to be an issue for particularly long. simply because people will reroute the gold flows into the important consuming markets of China, India, et cetera.

You think it's considerable, John, or is it something people should just be aware of? When you hear this, you hear this about other assets and we think maybe we don't have this issue, but we should be aware of it. But again, the price behavior of gold, particularly the London press that we watched very closely, it's reflecting kind of consistent conditions with what we've expected to see around a conflict, right?

I completely agree with that, Joe. And I think you need to differentiate in a way between price formation that takes place in the financial trading centres of New York, London, Shanghai. And then the physical availability of metal which meets consumer demand. Yeah. The former, London, Shanghai, and New York are all working fine at the moment. The physical flow of metal has been temporarily interrupted in some regions, but this is a very diverse industry and if you can't get gold from Dubai

you can probably get it from Singapore, you can certainly get it from Switzerland. Right. And if necessary, there's quite a few killer bars in New York after last year, which could be used to supply markets where they need to. So This is not a rerun of COVID. This is not a rerun of the tariff concerns that we saw in the back end of 2024 and early 2025. But it is something to keep an eye on.

It's interesting for sure. Now what is actually conditional around all global markets for gold is an increase in level of volatility in the price. And that actually continues to be coming up. I'm here at PDAC. It's being brought up here in the discussions by investors here. It's being brought up by market participants here.

You know, the levels that we've been seeing, you and I have had conversations about this, they seem materially higher, and they look to be more likely to be sustained at these higher levels for the foreseeable future. I think that's right, Joe. Gold is not a particularly volatile asset most of the time, despite sometimes the reputation it has and people calling it, you know, a very risky thing to invest in.

Just looking at the chart of three month implied volatility over the last fifteen years or so, we've probably averaged somewhere between fifteen, eighteen vol over that period. Right. Now, since gold started to trade materially higher in twenty twenty four. Vol has been ticking higher and it accelerated higher in twenty twenty five with what has happened so far this year in January and now with this Middle Eastern conflict.

Implied vol's high. We're sitting at a level of about twenty-eight vol for three month implied, and that's a pretty high level, indicative of everything we've discussed in terms of the conflict. But I wouldn't expect it to rapidly fall back to the sort of fifteen, eighteen level that we saw a few years ago. I think that the the changing nature of the marginal buyer of gold over the last twelve months has really played a role.

Yeah, I think that's right, John. I think that you've got more people who are invested in looking at gold as a strategic asset. You've got people who are looking for the safe haven nature. But you've also seen more interest in momentum trading, speculation around the asset, because it's a liquid asset, a large global market. There's a lot more people who are now involved in the gold market. The interest level is very high. And I think that those types of investment activities.

will lead to a higher level of volatility and sustained level of volatility. But people should just understand that and not be concerned about it. It's just something to understand. I think that's quite right. I mean, one of the things we've been speaking about over the last couple of years is the changing nature of this marginal buyer.

If you go back to the beginnings of the gold price strength back in 2024, the story was very much about central bank buying. It was about physical buying of gold for investment and jewelry from emerging markets. And that really was the story for the next twelve, eighteen months. But the return of investment and speculation, particularly from the West, has changed the nature of the market. We saw that in the correction that we saw in gold in October.

And we've seen it again in the remarkable performance of gold, both on the upside and the correction that we saw in January. Right. So investors should be aware that gold will attract Speculative flows when it's trending for higher. That's what the last six months has shown us. That probably continues. It doesn't change the story of gold, it doesn't change its fundamental value, but it does mean that you may get rapid increases and abrupt sell-off.

And that can potentially help you if you're looking to make an allocation.

And look at the heart of all of this is very disruptive policy behaviors by the US and other governments. So this is a condition that's being played out amongst many risk assets. other assets as well. So people should just like you've said, understand what it means and understand the conditions that they'll actually work with, probably for the foreseeable future.

Yeah, I think twenty twenty six, as you said earlier, is looking as if it'll play out in the same way that it did in the second half of twenty twenty five. Lots of volatility. And with that, thank you to our listeners for tuning in. To stay up to date with our monthly podcast, be sure to subscribe and follow Unearthed on Goldhub.com or wherever you listen to all of your podcasts.