How Markets Behave During War: Lessons from the Gulf War (90–91)

🧠 Overview
As global tensions escalate and risk sentiment deteriorates, it’s worth revisiting how major asset classes behaved during past war scenarios. The Gulf War (July 1990 – March 1991) offers a clean case study with distinct phases of market psychology.

📊 What This Chart Shows
A synchronized visual comparison of:
Gold – Classic safe haven behavior
S&P 500 – Risk asset sentiment
DXY – USD demand during crisis

🧭 Phases Identified
Phase 1 – Shock
📈 Gold spikes | 📉 Stocks crash | 📉 USD weakens
→ Panic phase as markets price in uncertainty

Phase 2 – Consolidation
Market stalls, both risk and safe haven flows stabilize.

Phase 3 – Gradual Risk-On
Equities begin recovering as risk appetite cautiously returns.

Phase 4 – Shake-Off & Parabolic Rally
Gold rolls over, stocks go parabolic, and DXY forms a double bottom.

🔍 Key Insights
🟡 Gold surged +17% in 43 days, then faded
🔴 SPX dropped -17%, then reversed with a +26% rally
🟣 DXY fell -9%, but rebounded sharply later

⏱️ Timing matters: Safe havens perform early — but are not eternal shelters.

💡 Why It Matters Today
If current geopolitical risks evolve into a Gulf War-type scenario, we might observe:
🟡 A first wave into Gold or USD
🔁 A rotation back into risk assets as clarity improves
📈 Opportunities for reversals in oversold names

This chart is not a forecast — it’s a framework. Patterns may not repeat, but they often rhyme.

✍️ Ongoing Series
This is part of a multi-part series exploring how markets react to war and crisis. Future posts will include:
Iraq War
Russia-Ukraine 2022
9/11 aftermath
COVID-19 as a “war-like” shock

📌 Follow for the next studies.

🧷 Chart: Gold, SPX & DXY during the Gulf War
🔖 Annotated and structured by fredcast80