If you had told anyone a year ago that today we would be on the verge of World War III, with a war raging in Ukraine, most people wouldn’t have believed you. Even a week or two ago, the possibility of war was discounted. We all thought that the days of outright invasions and open warfare, especially in Europe, were over.
Yet here we are today, with Russia having attacked Ukraine, the rest of the world rallying to Ukraine’s defense, and the possibility of conflict between two nuclear-armed powers growing ever more possible. Once again, everything we thought we knew has been completely upended.
2020 was the year of COVID, in which our daily lives were changed forever. Lockdowns and mask mandates characterized the year, which saw a sharp recession, millions of job losses, and the beginnings of economic instability and supply chain disruptions that still affect us.
We all hoped 2021 would bring a return to normalcy, but it didn’t. COVID lingered, vaccine mandates were imposed, and the results of massive government monetary and fiscal stimulus began to be apparent, as inflation rose to levels not seen in 40 years.
Many hoped that 2022 would be the year that inflation would be tamed, and that the economy and society would return to normal. But those hopes were quickly shattered. Inflation continued to climb, and now with war raging in Eastern Europe the prospect for a return to normalcy looks grim.
Financial markets have been all over the map in recent days, trying to figure out how to process what’s going on and how it might affect the world economy. Fear seems to be one of the overriding emotions affecting markets right now, and it’s at levels that we haven’t seen in a long time. The possibility of a political miscalculation leading to all-out war rises every day, and if that happens, all bets are off.
Amidst all this uncertainty and fear, there is one asset that has shone above and beyond all the others: gold. It is times like these that showcase the importance of gold, the performance it can display during dark days, and the popularity of gold among investors when the future remains murky.
The Uncertainty of War
Right now we’re still in a wait and see situation with regard to the war in Ukraine. Russian troops appear to continue making inroads into the country, threatening both the capital, Kiev, and the second-largest city, Kharkov. Other nations are beginning to push back against Russia, aligning themselves with US and EU sanctions.
Russia’s stock market has basically stopped functioning, the ruble is being hammered, and Russia is technically going to default on its debt obligations by forbidding redemption of government bonds. It’s a perfect storm of economic chaos, mirrored by the situation on the ground in Ukraine.
Along with all of that comes an increasing unwillingness on the part of many foreign countries to purchase Russian oil, something that could starve Russia of vital money, including foreign exchange. But that same unwillingness to purchase Russian oil could end up boosting demand for oil (and natural gas) elsewhere, leading to higher oil and gas prices.
A few weeks ago, no one would have predicted that we’d be witnessing a war like this. So who knows what the world will look like in a few more weeks, or a few months, or by the end of the year? It’s no surprise that, faced with such uncertainty, more and more people are turning to gold to protect their assets in the face of this uncertainty.
The Uncertainty of Inflation
The war comes at a particularly bad time for the Western economy, which has seen inflation reach its highest levels in 40 years. Central banks are just at the point that they’re preparing to start hiking interest rates to combat inflation, and now this war breaks out.
Stock markets have been all over the place, energy markets are topsy turvy, and no one knows which way the economy will head in the coming months. As many central bankers are saying, the war in Ukraine brings with it a great deal of uncertainty.
Fed Chairman Jay Powell all but closed the door on the possibility of a 50 basis point rate hike this month, and now the debate will be whether the Fed decides to hike rates at all, or whether it will choose a 25 basis point hike. If the Fed doesn’t hike enough, it risks losing any inflation-fighting credibility it might have had. But if the rate hikes end up spooking markets and sending stocks southward, there’s going to be a great deal of pressure on the Fed to keep monetary policy loose.
That, in turn, could allow inflation to continue to run amok. We’re at 7.5% annualized inflation already, could 10% be in the cards in the coming months? What might things look like come summer if the war in Ukraine has devolved into a brutal quagmire, oil has climbed to $150 a barrel, and inflation is nearing double digits? That’s a nightmare scenario that could very easily play out. But no one knows for sure what will happen, and that’s scary.
Financial Reassurance With Gold
It was no surprise, then, to see the gold price take off as war began in Ukraine. At one point the yellow metal spiked to $1,950 an ounce, the highest it has been in months. And while stock markets still jump all over the place from day to day, gold has been pretty consistently trading well above $1,900. If the war gets any worse, there’s every reason to believe that gold could continue to climb.
We need to face the reality of the situation today, namely that we don’t know what the political or financial landscape is going to look like in the coming months and years. High inflation, a war in Eastern Europe, roiled world energy markets, and weakening economies are coming together to create what could end up being a major world crisis. It’s in times like these that gold really shines.
Gold has stood the test of time, protecting wealth and assets through both good times and bad. It has helped people survive wars, famines, and hyperinflation. When paper currencies become worthless, when governments collapse, and when all else seems hopeless, those who have trusted their wealth to gold have often fared better than those who haven’t.
If you’re concerned about the future, and about the future value of your hard-earned savings and investments, don’t you owe it to yourself to learn more about how gold can help protect and defend you? Call the experts at Goldco today to learn more about how you can safeguard your savings with gold.