It goes without saying that war is an emotional and complex issue. But what does the concept mean for the gold price? Or, putting it another way, what impact does war have on the global economy?
To answer this question, it’s important to keep in mind that war is a multipurpose affair. Not only is it fought for political or territorial power, but war can also wreak havoc on global markets and economies. During times of conflict, gold traditionally outperforms all other markets. As governments across the globe are forced to increase spending on military expenditures, currencies can weak and gold prices can often surge as a result. This is due to investors hedging their portfolios against economic and political turmoil.
The rise of precious metals such as gold and silver during wartime also highlights the concept of risk-aversion among investors. War drives fear and investors view gold and other precious metals as a safe-haven for their money. During hostilities, investors will typically move away from putting their money in stocks or other assets, and instead flood the precious metals markets with their cash.
The latest round of conflict has already had an impact on certain mining stocks. These miners produce commodities such as copper, gold, silver and even lithium. Lithium is a key component in electric car batteries, and the soaring demand for electric car batteries has already seen a boom in lithium prices over the past few years. With the outbreak of war in the Middle East, the lithium market could see a new surge as investors seek to minimize their risk exposure.
All in all, it’s clear that war has a direct and tangible effect on the gold price and other commodities, making it a key indicator of risk-aversion among investors. War creates uncertainty and investors often shift their assets to more secure investment vehicles as a result. In short, war can and will always impact the global economy, including the gold price.