Gold is your bomb shelter

How long will this war last? No-one has any idea; even President Trump - the man best positioned to know - has only speculated that it could drag on for "several weeks".

In the few days since bombs first landed on Tehran some national stock exchanges have drastically fallen, crude oil and gas prices have soared, the Dollar has moderately strengthened against all its major peers...and gold at first soared to more than $5,600/oz on Sunday 1 March, then plunged to just above $5,000/oz on Tuesday 3 March before recovering to around $5,193/oz on Wednesday 4 March.

Price moves in gold of around 10% over two days is jaw-dropping, almost as much as the outbreak of such a widespread Middle East war. Crude oil and gas prices have jumped largely because Iran has threatened to "set fire" to any ships trying to pass through the Strait of Hormuz, the world's busiest oil shipping channel. This narrow strait is not just crucial for seaborne crude oil, but also accounts for the passage of some 20% of the world's liquified natural gas (LNG) and about a third of the world's urea, the most widely used fertilizer.

Iran, which has about 12% of the world's proven oil reserves and produces about 3.3 million barrels a day, is a crude oil exporter, perhaps earning as much as $43 billion from its crude oil exports in 2024-25. Neighboring countries depend on the Strait for their exports. It's not clear whether or not Iran has sufficient firepower to block the Strait - and certainly the US has a much stronger navy - but its mere threat could be enough to deter insurers from covering shipping.

Inflation beckons

China is the biggest buyer of Iranian crude oil, it buys more than 90% of the country's oil exports. China and Japan are the biggest global buyers of LNG, with some European countries also being major buyers. It's obvious that the longer the war lasts, the greater the chances are that prices of oil, LNG, and fertilizer will rise ever higher.

But not only those commodities will see higher prices. Those commodities - and countries - are vital for all manner of consumer goods; the prices of all kinds of items are likely to rise as a consequence of this war. By how much is impossible to say - the longer the conflict, the higher the price rises.

Most Asian countries have strategic reserves of oil and gas to cover at least 20 days of demand and some, such as Japan and South Korea, have enough reserves to cover more than 200 days of domestic demand.

As prices rise, the chances of further interest rate cuts dim. Last year the US Federal Reserve held three separate 25-basis-point reductions. It had been expected that similar interest rate reductions might happen this year, as inflation seems to be cooling. The current US unemployment rate of 4.3% is also higher compared to recent periods and might have supported calls for further rate cuts.

But the war is certainly going to discourage any rate cutting. Central banks are well aware that the kind of chaotic disruption associated with wars inevitably sparks inflation. A worse prospect is that if the oil-and-gas problem persists, it will become a growth problem - stagflation could pop up. US war spending in the 1960s drove borrowing-and-spending and ushered in the last really serious stagflationary episode.

Trust declines

The gold price probably fell early on in this war because some investors took fright. The overall background remains highly supportive of gold. Wars tend to cause the gold price to spike, but - as with this one - that spike can be very short-lived and other factors such as inflation expectations, interest rate policy and the general state of the economy will assert more impact.

For gold one thing seems clear - its price 'floor' today appears to be some five times higher than a decade ago. Back in 2015 the 'floor' was generally reckoned to be slightly above $1,000/oz. One effect of this war that is truly impossible to predict is also more important - the world has to become more accustomed to the profound changes in alliances and power-support that are already taking place. That replacement of certainty and trust will be longer-lasting than any war; their disappearance will leave all previous certainties, such as our confidence in the reliability of fiat currencies, in the dust.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

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