15. 4. 2024.

Geopolitical tensions have once again come into the focus of the world public after the latest escalation of the conflict in the Middle East, in which Iran launched a direct attack on Israel.

American intelligence services warned on Friday that an attack would occur within 48 hours, simultaneously causing great concern on world markets and prompting many investors to turn to gold as a safe haven in uncertain times.

The Iranian-Israeli conflict - what happened?

Iran is on Saturday night sent out over 300 drones and dozens of cruise and ballistic missiles. Most of the aircraft were intercepted and shot down by the Israeli air defense system in cooperation with the US and other Western allies. 

According to the Israeli military top, the plan of Iran and Hamas is to start a wider conflict in the Middle East, and it has been working on this for a long time with the help of Hezbollah in Lebanon, Hamas in Palestine and the Houthis in Yemen.

The Israeli military cabinet believes that with this act Iran has crossed a red line and claims that after the meeting on Sunday, plans were approved for a defensive action, as well as an offensive attack on Iran despite the warnings of US President Joe Biden. The further development of events at this moment is still uncertain, and further escalation is easily possible.

How do geopolitical conflicts affect the price of gold?

According to almost all analysts of world events, a war between Israel and Iran is a scenario that everyone tries to avoid, because such an escalation could lead to a wider conflict, and possibly to the third world war. This knowledge is one of the main factors influencing the growth of uncertainty and fear in world markets.

Increased uncertainties and risks in the last month are forcing investors to turn to safe investment instruments such as investment gold in the form of gold coins and gold bars. The growth of demand for gold affects the growth of its price, just as the basic laws of supply and demand dictate.

Given the growth in demand for gold, especially from larger institutional investors, the price of gold at the moment has reached €2,206 per ounce, while in US dollars it is around 2,352 per ounce. In the last 30 days, the price of gold in euros increased by almost 11.4%, in the last 12 months by over 21%, and in the last five years by more than 90%.

Historical examples of the impact of wars and crises on the price of gold

What we are currently seeing in the gold market is part of a wider trend. The price of gold it often increases during various forms of crises, both financial and economic recessions, as well as during the emergence of wars and growing geopolitical tensions. 

One example is the period between 2008 and 2011, when, in addition to the major financial crisis, there was also a war between Russia and Georgia, a series of conflicts in Gaza and Lebanon, and the beginning of civil wars in Libya and Syria. It was during this period that the price of gold increased by over 200%.

More recently, we saw a similar price reaction in early 2020 when the coronavirus pandemic and lockdown measures occurred, in 2022 when the Russian-Ukrainian war occurred, and in 2023 after the escalation of the Israeli-Palestinian conflict. The conflict between Israel and Iran is just another in a series of tragic events.

What to expect in the future?

Given that the world has been moving towards a multipolar geopolitical arrangement for years, in which the US will not be the only world power that can and wants to show its power, in the coming years and decades we can expect the continuation of geopolitical tensions and the flare-up of new open conflicts.

Although some focal points such as Ukraine and Israel have already been activated, there are still a number of unresolved "cold" conflicts in the world that could turn into hot ones in the future. Probably the best example is the one involving Taiwan, an island over which the interests of the world's two largest economies - the USA and the People's Republic of China - are in direct conflict.

The future is therefore very uncertain. In the best case, all the mentioned conflicts will be resolved diplomatically, without open conflict and the problems that they bring with them. In the worst case, however, a period of new wars and crises awaits us.

In any case, owning gold in such times is a wise decision that has proven to be profitable many times in history.

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The texts on centarzlata.com serve exclusively to inform and educate about financial and precious metal markets and should not be considered as investment advice.