What does war mean for the gold price?

In the last week or so there has been a changing sentiment toward what is driving gold, a large part of the focus is now directed toward Syria and less so on the FOMC’s tapering. Depending on whom you believe, Syria may determine the outlook for the gold and silver price.

But how much of an impact will a war with Syria really have on the gold price?

Other commodities, such as oil are also impacted by murmurings of war but even they too are looking at factors beyond Syria as price drivers.

Many analysts believe the gold price (COMEX:GCZ13) will climb as investors turn to it as a safe-haven in times of geo-political crisis. This may be the case, but whether this will matter once foreign military action begins, or even if it never begins, is an important question.

On the face of it, it may seem obvious that the gold price will climb as action surrounding Syria holds the world’s attention. After all, the price of gold has climbed to a three-month high reportedly on the back of events in the Middle East and the war rooms of the West.

In the last month, as discussions surrounding Syria have heated up the gold price has climbed by as much as 9%. At the time of writing it is up by 6%, as the threat of war seems less imminent than it did earlier in the month.

Gold and war

There is much to be said about the run to gold during a war, the mentality of both civilians and soldiers during war and how they react to gold but let’s put this to one side for now and look at how gold behaves in the run up to a war. Whilst it may seem there are too many wars, there are also several ‘run-ups’ to them before anything, if at all, happens.

Rumors of military action

Of course, at the moment all we have is talk of a war. This has happened many times before, and often with no outcome.

As rumors of a war with Iran peaked at the beginning of November 2007, gold soared to reach a 27-year high touching $806/oz. This was five-months after the U.S. government issued a warning to all U.S. citizens not to travel to Iran and just a month or so after the first batch of U.S. sanctions were placed on the country. Again, it seemed gold ‘smelled’ war.

The red line indicates when gold soared, it then fell to levels not seen since the previous month before climbing and falling over the next couple of months. It wasn’t until the beginning of January when the gold price pushed above the highs seen in November.