The devastating events the world has been witnessing is pushing investors to consider turning to gold, the well known safe haven investment in times of turbulence. But in order to determine whether or not this is a smart decision, we need to understand how wars can affect gold prices.
In times of great uncertainty and conflict, gold has always been considered to be a safe haven investment. That is because precious metals like gold are timeless and have the ability to retain their value across centuries.
If we go back in time to the impact wars have had on gold prices, we can see that prices of gold tend to boom with the onset of conflicts.
The graph below shows how the prices of gold soared after several wars took place across the globe.
In 1977, gold prices rose by 23% following talks about the Iranian Revolution that took place in 1978. With more upheavals and conflicts at the time, the prices of gold increased by 37% and 126% in 1978 and 1979, respectively. These significant increases in the prices of gold were a result of the Iran-Iraq war in 1978, the invasion of Afghanistan by the Soviet Union in 1978 and the Iranian hostage crisis in 1979.
Other worldwide turmoil such as the Gulf War in 1990 and the 9/11 attack has resulted in the boom of gold prices. Iraq’s invasion of Kuwait in 1990 during the Gulf War is also said to have caused gold prices to significantly rise. The 9/11 attack on US soil has also pushed the prices of gold to skyrocket from $215.50 an ounce to $287. Furthermore and in early 2020, the US air strike on Baghdad pushed spot gold prices to $1,547.19 per ounce.
“We are seeing gold and silver continue to build on the gains we saw towards the end of December and there is no doubt that the latest developments with the attack in Iraq has taken us up to this level,” - Saxo Bank analyst Ole Hansen
The world has seen an increasing trend in gold prices as a result of tension and warfare throughout centuries, and the effect of the Russian-Ukrainian war on gold prices is no different. Earlier this February, the talk of a war taking place between Russia and Ukraine resulted in gold prices leaping to $1,830 per ounce. Soon after as Russia started attacking several cities in Ukraine, gold prices rose by more than 2% on February 24th trading at more than $1946 per ounce.
The precious metal has also always been considered to be a safe haven for investors in times of adversities, which comes to explain the significant impact turmoil and wars have on it. However, it is also important to note that gold prices tend to stabilize once the dust is settled.