The devastating events the world has been witnessing and continues to witness are pushing investors to consider turning to gold, the well-known safe-haven investment in times of crisis. But to determine whether this is a wise decision or not, we must understand how wars can affect gold prices.
Safe haven historically
In times of great uncertainty and conflict, gold has always been considered a safe-haven investment. This is because precious metals such as gold are timeless and have the ability to retain their value over the centuries.
If we go back in time to the impact that wars have had on gold prices, we can see that gold prices tend to rise with the onset of conflict.
The graph below shows how gold prices soared after several wars around the world.
In 1977, gold prices increased by 23% after the Iranian revolution talks that took place in 1978.
With more uprisings and conflicts at that time, gold prices increased by 37% and 126% in 1978 and 1979, respectively. These significant increases in gold prices were the result of the Iran-Iraq war in 1978, the Soviet Union’s invasion of Afghanistan in 1978 and the Iranian hostage crisis in 1979.
Other global turbulences, such as the Gulf War in 1990 and the 9/11 attack, have resulted in booming gold prices. The invasion of Kuwait by Iraq in 1990 during the Gulf War is also said to have caused a significant rise in gold prices.
The 9/11 attack on US soil has also sent gold prices soaring from $215.50 an ounce to $287. In addition, in early 2020, the US airstrike in Baghdad pushed spot gold prices to $1,547.19 per ounce.
How is the war in Ukraine influencing gold prices?
The world has seen an increasing trend in gold prices as a result of tension and war over the centuries, and the effect of the Russia-Ukraine war on gold prices is no different.
In early February, talk of a war between Russia and Ukraine resulted in gold prices rising to $1,830 per ounce. Shortly thereafter, when Russia began attacking several cities in Ukraine, gold prices rose more than 2% on 24 February, trading at over $1946 per ounce.
The precious metal has also always been seen as a safe haven for investors in times of adversity, which explains the significant impact of turbulence and war.
However, it is also important to note that gold prices tend to stabilise once the dust settles.
