How the Iran–Israel War Is Affecting Gold and Forex Markets

The world is closely watching the growing tension between Iran and Israel. What may seem like a political conflict in the Middle East is actually shaking financial markets across the globe. Investors are nervous, currencies are swinging, and gold is shining once again as a safe option. 

Whenever there is a fear of war, especially between big and oil-rich countries, people start pulling their money out of risky investments and putting it into safer places. That’s exactly what’s happening now.

This blog will help you understand how this war is affecting the prices of gold, the movements of different currencies, and what investors are doing in this uncertain time. Let’s break it down clearly and simply.

Geopolitical Fears Push Gold Prices Up

Gold is known as a “safe-haven” asset. This means when people are scared about what might happen in the world – like a war – they buy gold to protect their money.

What Happened Recently?

• After Israel attacked Iranian military bases, gold prices instantly surged more than 1%, rising by over $40 in a single day.
  
• On June 23, gold was trading around $3,354 per ounce.
  
• In India, gold crossed ₹100,000 per 10 grams, touching almost ₹103,000 in physical markets.

Why Does Gold Rise During War?

The ongoing war tensions between Iran and Israel have created a wave of fear in global markets. War in the Middle East, especially involving major oil-producing countries like Iran, brings uncertainty to the world economy. Investors worry about rising oil prices, disrupted trade routes, and political instability. 

During such times, people look for safer places to invest their money—and gold becomes the top choice. Known as a “safe-haven” asset, gold holds its value even when other markets fall. 

Another big reason behind this gold rush is how central banks respond during uncertain situations. With the Iran–Israel conflict adding pressure to global inflation and oil prices, central banks like the US Federal Reserve or the RBI may avoid cutting interest rates too soon. 

When interest rates stay steady or high, regular savings options offer returns—but when rate cuts are paused or delayed, people often turn to non-interest assets like gold. Since gold doesn’t give any interest, it becomes more attractive when rate cuts slow down. That’s why, in the middle of this war crisis, gold is shining brighter than ever for investors around the world.

How Forex Markets Are Reacting: Winners and Losers

Whenever a war breaks out, especially in a region like the Middle East that plays a big role in oil and global trade, it immediately affects currency markets. This is because investors begin moving their money based on fear, risk, and expectations about how the war will impact economies.

One of the biggest winners during such times is the US Dollar (USD). The dollar is known as the world’s most trusted and stable currency. So, whenever global tension rises, people across the world start buying dollars as a safe choice. As a result, the US dollar index went up by around 0.3% to 0.4% during the recent conflict. The more fear there is, the stronger the dollar tends to get.

On the other hand, currencies of developing countries or oil-importing nations often come under pressure. A good example is the Indian Rupee (INR). Since India imports a large portion of its oil, any increase in crude oil prices due to war directly affects its currency. 

During the peak of the Iran–Israel tension, the rupee weakened to around ₹86.7 against the US dollar. Although it has slightly recovered, it is still facing pressure from rising oil costs and foreign investors pulling out money from Indian markets.

What Is Driving These Market Moves?

1. Safe-Haven Demand

Investors are scared. They pull money out of risky assets like stocks and currencies of developing countries and park it in gold or USD.

2. Oil Supply Worries

• Iran controls part of the Strait of Hormuz, a vital route for global oil. Any disruption here can shoot up oil prices.
• Rising oil prices mean higher costs for countries that import oil—like India.
  

3. Central Bank Reactions

• If the war worsens, central banks like the US Federal Reserve or the Reserve Bank of India (RBI) might delay cutting interest rates.
• This makes gold more attractive and keeps currencies unstable.
  

Oil Prices and Currency Movements: How Gulf Countries Are Being Affected

The Iran–Israel conflict has raised fresh fears about oil supply disruptions, especially in the Middle East. Iran controls access to the Strait of Hormuz, a narrow but very important water route through which nearly 20% of the world’s oil is shipped. If the conflict gets worse and Iran threatens this route, oil prices could rise sharply, creating serious challenges even for nearby countries like the UAE, Saudi Arabia, Qatar, and Kuwait.

Now, these Gulf countries are major oil exporters, so at first glance, higher oil prices might seem good for them. But it’s not that simple. These countries also depend heavily on foreign investments, global trade, tourism, and currency pairs‘ stability. 

In the UAE, for example, Dubai’s economy is more diversified, with strong sectors like tourism, real estate, and finance. But when conflict hits nearby, foreign investors may hold back, tourism may slow, and the UAE dirham, though pegged to the dollar, can still feel indirect stress through inflation and capital outflows. Rising oil prices also push up fuel and food costs, which affects everyday spending and business operating costs in the region.

Similarly, in Saudi Arabia and Qatar, while oil revenues may rise, their currencies and markets still face volatility risks because global fear affects everything, from stock markets to central bank decisions. 

Real Examples of Gulf Impact:

• Stock markets in the GCC (Gulf Cooperation Council) countries showed short-term losses as investors reacted to war risks.
  
• Inflation in cities like Doha and Kuwait City started creeping up due to rising import costs and global shipping delays.

So, even though these Gulf nations earn from oil, they are not untouched by the instability caused by war. A major escalation, like Iran attacking tankers or oil ports, would not only raise oil prices but also increase uncertainty across the entire region.

Why Are Central Banks Quietly Buying More Gold?

While most headlines focus on oil prices and currencies during the Iran–Israel conflict, there’s a quieter but powerful move happening behind the scenes—central banks are increasing their gold reserves. This isn’t just a trend among private investors anymore. Many governments now see gold as a strategic asset to protect their economies in times of war and uncertainty.

What’s Happening:

• Central banks in China, India, Turkey, Singapore, and Russia have been steadily buying gold in 2024 and early 2025.
  
• They are doing this to reduce reliance on the US dollar and strengthen their financial security.
  
• The Iran–Israel war has made gold even more attractive as a safe-haven reserve asset.
  
• Rising tensions increase the risk of inflation and market panic, making gold a smarter long-term choice.
  
• If the conflict spreads or involves regional proxy groups like Hezbollah or the Houthis, gold demand may grow even faster.
  
• This surge in official gold buying is also one reason why gold prices are reaching record highs in 2025.

What Could Happen Next: Key Scenarios to Watch

As the Iran–Israel conflict unfolds, traders and investors need to prepare for multiple possible outcomes. Each path will affect gold prices, forex trading markets, oil supply, and central bank decisions in different ways. At EoneFX, we recommend staying alert and flexible, as these scenarios could play out quickly in Q3 2025.

Scenario 1: Escalation Continues

If Iran and Israel continue to exchange direct strikes:

• Oil prices could jump above $100 per barrel
• Gold may climb past $3,500 and keep rising
• Emerging market currencies like INR and TRY could weaken sharply
• Central banks may pause interest rate cuts to control inflation, even if growth slows

Safe-haven demand for gold and the US dollar will rise. Volatility in forex markets will stay high, especially for EM pairs.

Scenario 2: Limited Retaliation and Diplomatic Calm

If military actions are limited and global powers push for peace:

• Oil may stabilize around $90 per barrel
• Gold may remain above $3,400, but with less sharp movement
• Currencies may settle, but pressure on EMs could remain
• Safe-haven flows may slow down, though not vanish
  

A more balanced market, but traders should still be cautious. The calm may be temporary.

Scenario 3: Wider Middle East Conflict

If the war spreads to include Hezbollah, Syria, or Yemen, and Iran targets key routes:

• Major disruption in the Strait of Hormuz
• Oil could spike to $110+ per barrel
• Gold could surge to $3,600–$3,700
• Global investors will shift into full risk-off mode
• Emerging markets may face heavy capital outflows, and the Fed could delay rate cuts further

High volatility across all markets. Risk assets will likely drop, and defensive plays like gold and USD will dominate.

Strategic Takeaways from EoneFX: What Traders Should Do Now

At EoneFX, we believe that during uncertain times like the Iran–Israel conflict, smart positioning is key. Whether you’re a beginner or a seasoned trader, here are some practical, strategic ideas to help you navigate the current market:

What to Consider:

• Gold positions: Short-term outlook remains bullish. You may consider long positions with a stop-loss near $3,375, as global safe-haven demand remains strong.
  
• US Dollar strength: The USD is likely to remain firm against emerging market currencies like INR and TRY. However, be ready for a possible pullback if the US Federal Reserve hints at softer policy.
  
• Safe-haven forex pairs: Watch pairs like USD/CHF and CHF/JPY, which often attract capital during high-risk geopolitical events.
  
• Oil-linked assets: If the Strait of Hormuz faces further risk, Brent crude futures or energy-based ETFs may see increased upside. These can act as both profit opportunities and inflation hedges.
  
• Volatility hedging: Use tools like gold call spreads or forex volatility options to reduce risk in either direction, especially during sharp market moves.

Conclusion

In times of war, markets react quickly, and often emotionally. The current Iran–Israel conflict has shown how sensitive global markets are to geopolitical risks. Gold is once again proving to be a reliable safe-haven, while the US dollar continues to attract investors fleeing from risk. On the other hand, currencies like the Indian Rupee, Turkish Lira, and Iranian Rial are struggling due to rising oil prices and uncertain political climates.

As the situation unfolds, it’s important for traders and investors to:

• Stay updated with global news,
  
• Diversify their investments,
  
• And protect themselves with safer assets when needed.

Whether you’re a beginner or an experienced trader, understanding the connection between geopolitics and markets can help you make smarter financial decisions.