Continuation of Syrian War & How It Effects Gold Prices!

On the other side of the gold equation we have of course seen evidence of gold being used as a defense weapon in this war against Syria. In February 2012 sanctions on Syria, from both Western and Arab nations proved too much. The country resorted to selling some of their 25.8 tonnes of gold reserves ‘at rock bottom prices’ to try and raise revenue.

Previously the country had traded in gold, as well as other precious metals, until February 2012 when the European Union prohibited trade in precious metals with Syrian state institutions.

Internally, the gold market is not a booming one. Since 2009 the import of manufactured gold jewelry has been banned, whilst other gold objects above 0.5kg are also banned from being imported.

When the war broke out and sanctions took hold, citizens rushed to sell their gold; however, few were looking to buy as cash became king in a country where there was little money to be made anywhere.

Since 2000 it is estimated that the number of gold workshops has fallen from around 600 to just 200. There is yet little evidence that those caught in the middle of the conflict are turning to gold as a safe-haven. However data for smuggling is not yet available, we would also hypothesize that many of those escaping the conflict have taken whatever precious metals they own, recognizing it as a faceless currency.

Does war affect the gold price?

Talk of war and the act of war clearly affects the gold price. The price of the yellow metal obviously continued to climb after each of the three examples we provide. But in truth very little happens when the talk of war turns into action.

This brief look at a small selection of wars suggests that the gold price peaks prior to and at the beginning of military action, before returning to levels seen not long before. It then, of course goes on to extend its bull run. But how much of it was to do with wars that happen in the Middle East?

We believe very little, whilst geopolitical instability clearly is a driver for the gold price, it does not obviously have a long-term impact on the price of bullion. It may be interesting however to look at how the economic impact of wars go on to affect the price.

For instance, what many appear to forget when they discuss Syria, tapering and gold in the same breath, is that a war means money printing will have to happen regardless of what you call it.