- The Russia-Ukraine conflict increased precious metal prices
- Precious metal prove themselves to be safe havens
The effect of Russian-Ukraine tensions
Recent tensions between Russia and Ukraine show how gold is a proven safe haven. Historically, gold prices rise as tensions rise. The conflict pushed it towards $1,900 an ounce. Goldman Sachs said bullion levels could go well above $2,000 per ounce even if the U.S. doesn’t directly intervene in Ukraine.
There are several reasons for this. Conflict causes printed money to lose stability. Central banks around the world are shoring up their gold reserves because they prefer its inherent value. Almost 18% of all the gold mined throughout history is held by governments or central banks.1
This conflict comes at a time of dwindling stockpiles of raw materials. Russia is a main exporter of those raw materials. Prices go up because the limited supply is being threatened.
Stock earnings and profits are likely to fall due to war. This can unravel the quadrillion dollar derivatives market2. The effects of that would be catastrophic. Legendary investor Warren Buffett called derivatives ‘weapons of mass destruction’ 3.
Even after dropping slightly as Russia started a partial pullback of its troops, gold was still at record prices. The conflict could have engulfed Europe and hurt global supply chains. But it was only a short distraction from inflation fears and rising interest rates.
Out of control inflation is a main driver of rising gold prices. The Fed raising rates to stop inflation will push the price of gold even higher. CFRA analyst Sam Stoval said “equity markets are more at risk from the fallout from the war on inflation than on a potential invasion of Ukraine.”4
Gold is the Safest Haven
Gold and silver are hedges against both inflation and international conflict. The CFA Institute studied precious metals and conflict. Their study showed that geopolitical risks are different from other economic, financial, and political risks. It also showed that precious metals in a portfolio lower the impact of geopolitical risk. Compared to other hedges, only gold and silver perform consistently.5
A dark saying goes, “bad news is good news for gold.” Rising global tensions send investors running from stocks and towards precious metals. International crises are ultimately resolved. However, economic uncertainty remains. Gold is the safe haven asset that will always be in demand. Contact AHG to learn how gold can protect your investment.