How Does War Affect Gold Prices?

Even though most of us weren’t alive during World War II, the war’s impact on gold prices still offers crucial lessons today. How does conflict, such as the ongoing wars around the world, influence the value of gold?

One only needs to glimpse a history book to learn about the atrocities, disruption, and loss of life that occurred during that period. 

In the aftermath though, humans collectively went to great lengths to ensure such horrors are never committed again. (Except only in certain parts of the world)

War since then has mostly become confined to less developed regions of the world such as Africa, Asia, and South America.  

Recent events like the Russo-Ukrainian conflict and wars in Syria, Yemen and Afghanistan continue to prove that humans can’t live without conflict. But does that have an impact on valuable commodities we love so dearly? 

I mean the yellow metal folks. Gold. 

Is it good to buy during periods of uncertainty? Especially when Turkey is on the brink of launching an offensive in Syria? Let’s find out.

War’s Effect on Gold Prices

War significantly disrupts economies, affecting trade and currency values. 

Gold falls in that category. Here’s a chart that proves that Gold prices tend to rise during periods of war. 

The chart proves that Gold prices tend to rise during wars. Meaning that if you were to bank on Turkey and Syria fighting it out on the battlefield, you could be looking at another Gold price surge. 

Keeping this view, many people have already begun to invest in Gold trading or safeguard their assets with it. 

But you may wonder why war affects gold the way it does. Let’s examine the ways in which war impacts the price of gold. 

Ways in which war affects the price of gold

War is a huge economic and financial disruptor. It can break down a country’s economy to its lowest level. Beyond this, here are some other ways war-affected countries:

Trade disruption

International trade is one of the first casualties of war. If a warring nation is one of the largest producers of raw materials, the effects of war could be global.

For instance, Look at the ongoing Russo-Ukrainian war. Russia is a major producer of gold, nickel, oil, natural gas, and palladium. On the other hand, Ukraine’s biggest exports include grains, neon gas, and sunflower oil. 

With both nations at war, precious metals, food, and energy supply are getting affected. This has jacked up the Gold prices. And even though gold prices have already risen due to the ongoing war, there’s a chance they could go higher.

Fear of incoming conflict

When citizens fear for their safety and well-being, they run to what’s familiar. Often, this means they head toward the financial safety of gold. The yellow metal can protect their wealth from potential damage when the stock markets crash. 

Gold becomes a safe haven when people also fear their assets will lose value. If the fear of war keeps rising, so does the price of gold. This is because most people will rush to buy it to protect themselves from the fallout.

Depth of conflict

The war’s depth, location, and seriousness significantly alter the gold price. For instance, civil wars in Africa and conflicts in the Middle East have little effect. The same goes for bouts of fighting in the Caucasus. 

That’s because those conflicts are between a major power and a minor power. It also has little impact if fought between two relatively minor powers.

The chances of these types of wars having significant economic effects are small. But, a war between two European giants could spell a deeper conflict with the prospect of nuclear war. 

So, the gold price will be affected more if the war strikes between major global powers. 

Past crises affecting gold prices

Gold has always been affected by the onset of conflicts. 

In 1977, gold prices increased by 23% due to rumors about the Iranian Revolution that happened in 1978. With more conflicts around the same time, the price rose by 37% and 126% in 1978 and 1979 respectively. 

These increases happened because of the Iran-Iraq war in 1978 and the invasion of Afghanistan by the Soviet Union in 1978. It also happened due to the Iranian hostage crisis in 1979.

Other global issues like 9/11 and the Gulf War in 1990 led to a boom in gold prices. The 9/11 attack increased gold prices from $215.50/ounce to $287. In 2020, the U.S. air strike on Baghdad forced gold prices to climb to $1,547.19 per ounce.

Current crises affecting gold prices

The current war in Ukraine is the most vital war affecting gold prices at the moment. Once Russia attacked Ukraine, gold prices skyrocketed and have stayed high ever since. While financial markets are trying to find stability, the war rages on and is bound to keep prices soaring.

Russia is also one the world’s largest producers of gold, responsible for 10% of world production. Western companies have already pledged to abandon Russian gold. This could send the price to unexpected heights as 10% of supply is disappearing while demanding increases.

Future crises that could affect gold prices

The war in Ukraine isn’t the only conflict that could affect gold prices. There’s an impending fear that Russia’s actions might encourage China to take over Taiwan. If this happens, the trade disruption could be a lot worse than what’s currently happening.

If China invaded Taiwan, that meant the U.S. and China would go to war against each other. This means many Chinese goods the world relies on would remain the same. This includes clothes, electronics, household appliances, and automobile parts. 

China is also a significant producer and consumer of gold. This means any future conflict will cause the gold price to become more unstable. The disruption could happen as western investors buy more gold out of fear of the economic effects of war. It could also be due to a lack of Chinese gold being supplied to the world markets.

In any case, there’s a high chance that any conflict could make the gold price very unpredictable.

Buy and Trade Gold now with ISA Bullion

War is a scary prospect that can cripple your finances for a long time. Economies get destabilized, and gold becomes the precious asset most investors rely on. 

We hope this article gives you a better understanding of the gold price situation in these uncertain times.  

In any case, there’s no better time to add gold to your investment portfolio. You can start trading gold online with ISA Bullion today on the go from anywhere in the world. 

Account opening is easy and can be done in 3 simple steps. So why delay? Get in on the latest and upcoming events today and lock in big Gold profits when the opportunities arise!

You can also get live market updates while tracking each trade on your mobile app. Register now and secure your finances for the future.