What Traditionally Happens to Gold Prices During War?

What traditionally happens to gold prices during war? War will bring an uncomfortable situation among people of the countries involved in the war. However, the effect will not only be experienced by them. People all around the world, including gold investors, will also face the effect of war.

War Implications for Gold

What traditionally happens to gold prices during war? This must be an important question, especially if you choose gold for your investment. The war between Russia and Ukraine has been going on for weeks. People might be able to see its impact on the yellow metal.

After two weeks of the war, it seems that the gold price has shown positive improvement. Yet, the jump in the gold price was followed by a decline after a while. It increased again, but it has retreated again. The markets might think that the war sounds like going to end. That is why the gold price has been corrected after an impressive increase.

Of course, you cannot just consider the short-term condition of the gold price to make the right decision of investment. You also need to see the long-term outlook for this metal. Compared to the long-term outlook before the invasion, it seems that gold is more bullish in the long term (read: gold price chart here).

Factors Affecting Gold Prices

It is normal that the prices of gold to rise and fall. Nevertheless, you need to know the rise and fall of gold prices properly to make a wise investment decision. You have to know more about factors that might affect the price of gold.

The first factor that will affect the gold price is the demand. You might know that gold is considered a highly coveted commodity because it can be used for various purposes. Of course, everyone knows that gold is a precious metal. However, it is also used a lot in the manufacturing sector. For example, it becomes an important material for making an electrical conductor that will support the life of a device. Gold is also used widely for investment.

Because of so many uses of gold, the price of yellow metal tends to rise with increased demand. There was a time when the gold prices increased. At that time, the gold demand increased because significant economic growth of India and China (read: Gold Demand Trends Q3 2022).

The gold price cannot be separated from the fiat currencies, after all. Both have an inverse relation. If the currency gets stronger, the gold price tends to drop. It might be the reason why gold investors will always get updated with the currency and Forex rates. However, you can also find a time when both gold and currency are rising in tandem affected by a few macroeconomic factors.

Gold is a traditionally steady asset

Wise investors have looked toward gold as a steadfast diversification tool. It has an organic store of value that hedges against volatile economic conditions. Central banks have also reserved gold to hedge against economic downturns (read: Why central banks buy gold). War may cause economic uncertainties and tie into the price of gold.