MW The great gold myth: Why the precious metal isn't the war hedge we're told it is

By Mark Hulbert

Gold has tumbled since the Iran war started - and it proves everything you know about geopolitical risk is wrong

Investors seeking safety for their money don't necessarily choose gold.

From everything investors are told, it makes no sense that gold (GC00) would fall so much in the midst of the Iran war, which is now 100 days old.

Since Feb. 27, the day before the Iran war started, gold prices have tumbled about 18%. That's difficult to square with the widespread belief that gold is a hedge against geopolitical risk.

Gold investors shouldn't be surprised. None of the factors that that are widely assumed to be correlated with gold rests on a strong statistical foundation. Gold instead marches to its own drummer.

Perhaps gold's decline is an exception to the historical rule. To find out, I calculated the correlation between bullion's monthly changes and that of the Geopolitical Risk, or GPR, index. This index, created by Dario Caldara and Matteo Iacoviello, economists at the Federal Reserve, measures "adverse geopolitical events and associated risks."

Over rolling five-year periods since 1968, the correlation coefficient between monthly changes in gold and the GPR has varied from a low of minus 0.28 to a high of plus 0.33. (The negative coefficient means that the two more often than not are moving in opposite directions, while the positive number means that they are tending to move in synch with each other.)

In other words, there is no stable relationship between geopolitical risk and gold's price. This means that market timers can't use geopolitical risk as a reliable guide to gold's short-term movements. Gold's counterintuitive performance since the Iran war began is therefore not an exception but entirely consistent with the historical record.

I reached the same conclusion for each of three other indicators that gold investors often claim are correlated with gold: The consumer-price index, or CPI; the U.S. dollar index DXY; and the Economic Policy Uncertainty, or EPU, index, which measures uncertainty about future political and economic policies. As you can see from the chart above, the trailing five-year correlation coefficient between gold and each of these indices is just as unstable as it is for the GPR.

Wes Crill, vice president at Dimensional Fund Advisors, said in an email that "investors should be cautious holding [gold] in the hopes of hedging adverse events they anticipate."

My analysis focuses on rolling five-year periods, and gold in fact may be a strong hedge over longer periods. That's the implication of research from Campbell Harvey of Duke University and Claude Erb, a former commodity-fund manager at TCW. In their 2013 study "Golden Dilemma," they found that over extremely long periods - a century or more - gold does appear to maintain its purchasing power. But over the short and even intermediate terms, lasting not just several years but decades, gold's correlation to inflation is unstable.

To the extent you want to own gold, the best advice may be to pick a small but meaningful allocation and stick with it. Attempting to adjust your gold exposure in response to external factors is most likely a fool's errand.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: The double 10K scenario: Wall Street veteran says the S&P 500 and gold can each reach that mark by the end of the decade

Also read: Gold stocks are in a bear market. The case for buying.

-Mark Hulbert

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June 13, 2026 14:52 ET (18:52 GMT)

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