How will the trading of gold and A-shares escalate conflicts? Lessons from the "12-Day War" between Iran and Israel

Stock markets are expected to be somewhat volatile this week, and we believe gold has a higher chance of rising than falling. Some traders told Yicai that the recent escalation of the Middle East situation was not sudden; preparations had been underway for a long time, and oil prices had already rebounded in advance, signaling that the market has partially digested the expectations.

Yicai reporters found over the weekend that most opinions on the A-share market believe short-term risk appetite will be somewhat impacted, but the long-term trend will not change. There are differing views on gold’s outlook: many believe the safe-haven logic is clear, and gold prices are expected to continue rising, but some industry insiders think the end of the conflict could come sooner than expected, leading to a correction in gold prices.

Before the outbreak of the current Middle East conflict, gold had been steadily rebounding. As of last Friday’s close, COMEX gold was at $5,296.4 per ounce, with an intraday high of $5,299 per ounce. It continued to rise on Monday morning, up 2.72% at the time of writing, reaching $5,390.70 per ounce. Spot gold also surged, rising to $5,368 per ounce in the morning, an increase of over 1.7%.

How assets perform depends heavily on the “duration” of the war, which is a key variable influencing market reactions. “The impact of conflict on asset prices generally follows the pattern of ‘rise in expectations, sell-off on reality,’” said Huaxi Securities on March 1. They noted that after a war begins, asset prices are closely linked to market expectations of how long the conflict will last. Initially, a lightning-fast strike is the baseline expectation. If the conflict evolves into a protracted stalemate, asset prices may fluctuate again.

Gold’s safe-haven logic remains, but beware of downside risks

Regarding gold price trends, the aforementioned trader said that rising geopolitical risks boost safe-haven demand. Currently, many large overseas investment institutions still have low allocations to gold, and there is potential for increased buying, making further gains likely.

What happened to gold during similar conflicts in the past? Western Securities reviewed the “12-Day War” between Israel and Palestine in June last year, noting that gold’s movement was very clear: it rose in expectation and sold off after the conflict was resolved.

Historically, U.S.-led Middle East wars tend to end in two ways: a lightning strike, such as the June 2025 Israel-Palestine conflict (“12-Day War”); if the lightning strike fails to deliver a decisive breakthrough, the conflict often turns into a stalemate, exemplified by the Iraq War in March 2003.

The “12-Day War” officially started on June 13, 2025, and continued to escalate. U.S. military intervention began on June 21, with the conflict easing on June 23, and a ceasefire taking effect on June 24. The 12-day direct military conflict was thus paused.

How did gold perform during this period? Before June 13, gold prices rose slightly, with London gold up 1.4% on that day to a high, then gradually declined. After the ceasefire, gold prices further fell.

Specifically, London gold hit a high of $3,500 per ounce in April 2025, then traded sideways for several weeks. During the war brewing period (June 2-12), it only rose 3%, far less than oil. On June 13, when the conflict broke out, gold rose 1.4%, but from June 16-20, it fell from $3,433 to $3,368 per ounce, mainly due to three factors: the Federal Reserve maintaining a hawkish stance supporting the dollar, market expectations that the conflict would end soon, and gold already being at a high level prompting profit-taking. After the ceasefire on June 23-24, London gold dropped 1.14%.

Analysts believe that if the current conflict remains limited to Iran, its impact on oil, precious metals, and stocks will be relatively short-term. In extreme cases, if the conflict intensifies, the impact on asset prices could last longer.

Huaxi Securities states that during this conflict, the safe-haven logic for gold is significantly stronger than during the June 2025 “12-Day War.” “Unlike in June 2025, when the hawkish dollar suppressed gold, the Federal Reserve is now in a rate-cut cycle, weakening the dollar’s constraints. Moreover, the conflict erupted more suddenly and intensely, supporting the case for gold and silver to rise.” However, they caution about the risk of rapid declines if Iran’s resistance weakens.

Short-term risk appetite for A-shares is affected, but long-term logic remains

The current Middle East conflict is not a “black swan.” Signs of escalation have been clear since late January. “The U.S. and Israel have been preparing for a long time. Since February, we believed there was at least a 50% chance it would happen,” the trader said.

Huatai Securities also noted over the weekend that with recent U.S. military deployments to Iran, the market has already priced in some escalation. Since late January, the U.S. has dispatched two aircraft carriers, numerous fighter jets, and fleets to the Middle East. Brent crude and international gold prices have continued to rebound, reflecting some market expectation of escalation. However, the intensity of this military action far exceeds last June’s “12-Day War,” and the evolution of Iran’s situation will largely depend on subsequent U.S. actions and Iran’s responses, with significant uncertainty remaining.

How did the A-share market perform during the “12-Day War”? According to Huaxi Securities analysts, the market’s reaction aligned with the process of brewing, outbreak, and easing of the conflict, with larger fluctuations than U.S. stocks.

On June 9 (Monday), the market shifted from rally to consolidation, and during the escalation from June 13-20, it continued to adjust, with the Wind All A Index falling 2.16%. When the conflict eased on June 23, the market rebounded sharply, with the index rising 3.84% from June 23-25, breaking through the previous sideways range and entering a sustained rally in July and August. Sector-wise, during the brewing phase, non-ferrous metals led gains; during escalation, SW banking and petrochemical indices rose against the trend. After easing, non-bank financials and computers led the gains.

“Market impact may be limited. This conflict might temporarily dampen risk appetite, but a sustained bull market is unlikely to be overturned,” Huaxi Securities believes. Post-Chinese New Year, market sentiment has been tentatively recovering, but trading volume remains around 2.5 trillion yuan, indicating lingering doubts about the sustainability of the recovery. The escalation of Middle East tensions could temporarily suppress risk appetite. Nonetheless, the consensus on a bull market persists, and short-term shocks to risk appetite and liquidity are unlikely to change the progress of the tech industry or the logic of resource price increases.

Additionally, since 2025, the A-share market has demonstrated strong resilience to external shocks. If short-term volatility occurs, funds are likely to flow in for rebounds, helping stabilize the market.