Israel and Palestine are in a major conflict, and gold remains "unmoved," which is quite unusual

The geopolitical conflict between Israel and Iran continues to escalate, with the United States frequently signaling military intervention, leading to an unusually rapid decline in the geopolitical risk premium for gold. Deutsche Bank stated that this abnormal performance may be a false signal.

On June 21, according to news from the Chasing Wind Trading Desk, Deutsche Bank's latest research report indicated that the rapid decline in the geopolitical risk premium for gold since last week appears unusual compared to its historical reactions to similar geopolitical events.

As the Israel-Iran conflict escalates, spot gold has continued to decline this week, closing below $3,370, with a cumulative drop of over 1.8%, marking its first decline in three weeks. Just the week before the conflict erupted, spot gold surged significantly, peaking near $3,450.

However, Deutsche Bank noted that historical data shows that the event risk premium for gold typically peaks between the 8th and 20th trading days after a crisis occurs, with an average increase of 5.5% (spot price) and 6.3% (model residual). The bank believes:

Given the severity of the Israel-Iran conflict and the actual mobilization of U.S. troops, preparations should be made for gold to rebuild its risk premium in the coming weeks.

Rapid Decline of Gold Risk Premium

Deutsche Bank stated that the rapid decline in the gold risk premium also contrasts with the increasingly public signals from U.S. President Trump since he left the G7 summit in Alberta, Canada, suggesting that U.S. military forces may engage in active operations alongside Israel.

According to an article from Wall Street Insight citing reports from CCTV News and Xinhua News Agency, President Trump stated on the 20th that two weeks is the "longest" timeframe he is giving Iran to avoid U.S. military strikes. U.S. media reported that this statement implies Trump may decide whether to launch airstrikes against Iran in less than two weeks.

On June 19, local time, the White House stated regarding the Iran issue that President Trump would decide within two weeks whether to attack Iran. Media reports indicated that Trump believes it is necessary to incapacitate the Fordow facility but has not yet made a final decision.

As the U.S. publicly signals military intervention, tensions in the Israel-Iran conflict continue, yet gold remains "unmoved." In this regard, Deutsche Bank's report pointed out:

Some opinions attempt to rationalize gold's poor performance, suggesting that the more public the signals, the more likely they are seen as a means of gaining leverage in negotiations, and given that Iran's air defense capabilities are reportedly diminished, there is no urgency for the U.S. to take action now.

However, this overlooks a fact: Israel's intentions to strike last week were similarly underestimated (including by Iranian authorities), and reports indicate that the U.S. military has already made some very practical redeployments, including the deployment of B-2 bombers to Diego Garcia in April and the movement of the USS Nimitz carrier group in the past week.

Historical Data Reveals Gold's Response Patterns

Despite the disappointing response of gold in the current "crisis," the historical context provides important references for framing current events. This context suggests that unless the current conflict is resolved through diplomatic means, gold is likely to rebuild some risk premium before the conflict is resolved.

The report states that historical analysis shows that the average spot price of gold rose by 3% during 28 crisis events, but the variation in individual events is significant. Historically, major events such as Hamas's attack on Israel, the Russia-Ukraine conflict, and the WHO's declaration of the COVID-19 pandemic have all driven gold prices to rise significantly.

Deutsche Bank has drawn several important observations from historical data:

1. Significant time lag effect: The event risk premium for gold may not respond immediately but gradually accumulates to a peak during the 8th to 20th trading days after the event occurs.

2. Huge variation in peak magnitude: Based on the simple average of the event list, the model residuals rise by 2.5%, and the spot price rises by 3%. However, this masks the time differences in the peaks.

Note: Residuals refer to the difference between actual observed values and estimated values (fitted values). "Residuals" contain important information about the fundamental assumptions of the model and can be viewed as observed values of errors.

3. The significance of the current conflict is prominent: Subjectively, the outbreak of open hostilities between Israel and Iran constitutes an event of greater significance than some other events on the historical list. If this judgment is agreed upon, then gold's response should at least reach the simple average level, which is a rise of 3%.

4. The real impact considering time differences: Due to the varying peak times, the maximum single response average of 5.5% for the spot price and 6.3% for the model residuals may be more important than the vertical peak values of 3% and 2.5%.