Unsurprisingly, ongoing events in the Middle East have revived a familiar assumption within financial markets. When conflict escalates and uncertainty spreads, the mainstream media and investors almost instinctively expect gold to surge as capital seeks refuge from instability. The idea that gold serves as the ultimate safe haven has become so deeply embedded in the financial narrative that many observers treat it almost as a rule of market behaviour.
The headlines this week would appear to have reinforced that expectation. The conflict between Israel and Iran has intensified, disruption to energy shipping routes in the Persian Gulf is raising fears about oil supply, and the IMF has warned that a prolonged conflict could affect global growth, inflation and market stability. Yet gold has not surged decisively to new highs in the way many investors might instinctively anticipate.
The reason lies in something markets often overlook – history. Gold has rarely responded most strongly to the outbreak of conflict itself. Historically the metal has tended to react more powerfully to the economic and monetary consequences that follow wars: rising government spending, expanding public debt and the policy responses that accompany prolonged geopolitical strain.
In our latest GoldCoreTV episode Jan Skoyles explains why gold does not always behave as investors expect during geopolitical crises.
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