As Israel and Hamas escalate their conflict from air war to ground offensive, gold has seen its value surge sharply – something not unexpected since gold tends to increase during times of uncertainty and geopolitical unrest. Deliberation over this conflict’s duration and escalation could further impact oil prices and global trade, potentially increasing the price of gold as people seek protection for their wealth.
Long-Term Conflicts
Conflicts among major world powers tend to have the greatest effect on gold prices, as war between two large nations can often have global ramifications and have an immediate effect on global trade.
Long-term conflicts will also have a drastic impact on the global economy and commodity prices such as oil, which in turn can increase gold’s value. Higher oil prices require central banks to print more money in order to control inflation – leading them to become more favorable toward gold by reinstating policies of monetary stimulus.
Conflict between Israel and Hezbollah could provide another potential source of volatility in the gold market. Both parties have threatened retaliation against each other, raising concerns that an expanded conflict may emerge – specifically that Iran becomes involved by supporting Hezbollah – potentially sparking a proxy war that directly threatens oil supplies around the globe.
Short-Term Conflicts
Gold prices often increase following war or major political events because investors seek safety in gold as markets become unstable. But it should be remembered that even though investors often turn to it for protection when markets become unpredictable, gold remains susceptible to price fluctuations from daily factors that affect its value.
War in Ukraine caused gold prices to spike due to concerns that conflict between Russia and the West could disrupt global supply chains and cause severe economic turmoil, while tensions between Israel and Palestine also contributed to driving gold prices upward. When geopolitical events like Russia’s conflict with the West occur, people, businesses, and governments often increase their allocation of gold reserves accordingly.
Gold prices can also be affected by geopolitical tensions, terrorist attacks, natural disasters, and other events that threaten global stability. Terrorist attacks in particular can have a hugely destructive impact on investor trust and lead to massive migration to gold, but this doesn’t always happen and could only have minor ramifications on gold prices.
Gold’s appeal as an investment can be explained by its lack of credit risk and low correlation with stock market returns. Recently, Chang, Della Chang, and Huang conducted a study that investigated the relationship between London and New York gold prices and discovered positive causality. They used an augmenting-level vector autoregressive (VECM) model to demonstrate this two-way causality relationship.
Nuclear War
An accidental nuclear exchange would likely be one of the most catastrophic events ever to befall humanity, destroying multiple major cities, leading to global famine due to smoke from burning cities obscuring sunlight, and perhaps wiping out human populations altogether.
As a result, people fearing war will break out or escalate, may seek refuge in gold as an asset class – thus explaining its price increase almost immediately after Russia began fighting Ukraine.
Be mindful that since 1945, mutually assured destruction has kept major world powers from engaging in interstate war on a large scale. But any miscalculation or accident can spark another round of global conflict.
That is why it is imperative that we never lose sight of the fact that nuclear weapons can serve not just for defense, but also attack. Therefore, working towards nuclear disarmament remains crucial, not only so as to limit the number of countries with nuclear arsenals but also so as to avoid accidentally starting wars that threaten everything we hold dear.
Trade Between Nations
War is devastating to trade relationships between countries. When war breaks out it can immediately alter how people exchange goods and services; if one of the nations that produces essential commodities is engaged in an armed conflict then those products could suddenly vanish from markets, drastically diminishing quality of life for all involved.
Therefore it’s vitally important that gold be stored as an emergency safe haven during times of unrest as this will provide those most in need with shelter from attack. Companies like Goldco offer ways to invest in precious metals. Be sure to research these companies before you decide to enter into an economic agreement with them.
Gold’s price usually increases significantly prior to and during war, while it often continues to climb once it begins. If it is only short in duration then its gold price may not rise as quickly – however this applies more for long wars that engulf multiple years than shorter conflicts which end quickly.
Although Israel-Hamas hostilities are currently driving gold prices higher, most of their recent gains can be attributed to other factors – like falling dollar and interest rate trends – not solely due to this conflict. So while war between these two nations may have an immediate effect on gold prices, its long-term effect won’t likely be significantly different.
China
Gold has long been seen as an asset that provides protection during times of war or financial crises, so when geopolitical tension or volatility increases it tends to rise; during Israel’s current conflict, this happened as soon as violence escalated, with gold prices seeing an immediate spike as violence increased – potentially signaling that this could become more significant as events play out across the Middle East.
China is both a producer and consumer of gold, so any conflict involving this nation will undoubtedly impact its price. We have seen past conflicts between China and other nations result in significant spikes in gold prices – one such instance occurred when China attacked Vietnam in 1962, sparking a trade war and forcing world economies into recession.
Gold demand in China has surged significantly amid a recent escalation of the Israel-Hamas conflict, likely as a response to fear over the global economic repercussions of any conflict between these two nations and an apparent shift from lower-carat pieces (or fashion pieces) toward investment-grade pieces (purer).
