War History Says “Buy”
According to a recent CNBC report, the price of gold has dropped to a four-year low, losing a third of its value in the last two years. On the last day of October of this year, gold prices fell another $25. Per ounce, the price of gold is now as low as it has been since 2010. In the last year, gold has dropped 8%, 4% of that value loss occurred in the 30 days.
Forbes.com attributes the dramatic dip in gold value over the last few months to a rising U.S. dollar index; a jobless rate that has fallen 5.9%—the lowest since mid-2008; and a resurgent European economy. “The stronger greenback has been a major bearish ‘outside market’ force working against the precious metals recently,” wrote Jim Wyckoff.
The question for physical trade investors waiting for the price of gold to hit rock bottom before re-upping is at what price is it time to start buy gold again?
Prices Will Continue to Drop May Be Wishful Thinking
Unfortunately, the drop in gold prices may not last as long as physical trade investors might hope. While there is no surefire means of determining when gold prices will rise and fall, in the last 100 years, there seems to have been a direct correlation between war and rising gold prices.
Prior to the First and Second World Wars, the price of gold hit historic highs. The price remained steady throughout the Korean War, but then had another massive spike during the Vietnam War. During the Cold War, gold prices hit an all-time, inflation-adjusted price of $2,458 per ounce. The price then began dropping, but there was another small spike at the height of the First Gulf War.
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The second largest gold price spike in the last 100 years occurred in September of 2011. Not coincidentally, the United States was at war in two countries simultaneously and in skirmishes throughout the region. Since the U.S. military’s withdrawal from Iraq and steady downsizing of the war in Afghanistan, gold prices have fallen dramatically.
ISIS and Iraq War Part III May Lead to Rising Gold Prices
While there are those who argue, just because the sun rose today that does not necessarily mean it will rise tomorrow, George Santayana may have made a more pertinent point when he wrote, “Those who cannot learn from history are doomed to repeat it.”
To combat ISIS, President Obama doubled the number of troops in Iraq in the last few weeks and met with Australian President Tony Abbott on November 10 to discuss adding even more troops. Global economic and political instability is one of the primary factors influencing gold prices. If Iraq War Part III becomes another full-scale war, or if any other conflicts escalate (like Russia/Ukraine), and if history is any indication of things to come, we can expect the price of gold to once again begin trending upwards.