Rebuttal: Why Betting on Gold During a World War is Misguided

By: David Merkur

Recent commentary, such as Matthew Jones analysis in Kitco News, argues that the growing threat of World War III could push gold to never before seen highs, perhaps even as high as $2,800 by Christmas. This speculation is based on gold's reputation as a "safe haven" which performs best during times of geopolitical uncertainty but it ignores other critical nuances, especially those of inflation and the historical realities that gold prices experience during wartime. What is even more troubling is the insinuation that a catastrophic global conflict should be viewed as an investment opportunity, this is an extremely dangerous and ethically questionable stance.

Gold Prices vs. Real Value: Lessons from History
Jones cites gold's reputation as a hedge against uncertainty to make his case. However, the history of gold is in fact much more complex. In both World War I (1914–1918) and World War II (1939–1945), the true value of gold (what it could buy, after accounting for inflation) fell sharply despite increases in its nominal price.

• World War I:
  
  
  • The gold standard set the nominal price of gold at $20.67 per ounce in the United States.
  • Inflation soared, and cumulative U.S. inflation reached almost 98%.
  • The actual value of gold decreased by about 49.5%, eating away its buying power despite nominal stability.
• World War II:
  
  
  • Gold, under the then operating Bretton Woods system, was fixed at $35 per ounce.
  • Inflation between 1940 and 1949 cumulated to 72.5%, which cut the real value of gold by about 42% over the decade.

The reality was that the actual purchasing power of gold had severely plummeted, even though its nominal price remained steady due to government controls. This puts to rest the notion that gold is a surefire hedge against inflation in times of war.

Gold's Real Performance During Modern Conflicts
Jones relates previous conflicts, such as the Gulf and Cold War, to prove modern geopolitical instability has driven gold prices higher. While that may be true in the short term due to immediate investor panic, those surges generally tend to evaporate in the long run.

• Inflation and War Spending:
  • Wars require huge government spending, largely financed by heavy borrowing and money printing. This creates massive inflation, which depletes the real value of assets such as gold.
  • Historical precedent indicates that, even if gold may move nominally higher, ots The Ethical Dilemma: Hoping for War to Boost Gold Prices
    The idea that someone might wish for a war to drive the price of gold up is very troubling. War is a humanitarian tragedy, not an economic policy tool. It destroys human lives, devastates economies, and completely destabilizes broad regions of the world.

• Human Cost:
  
  
  • Most importantly, aside from rising inflation and a declining economy, wars mean the loss of countless lives, displaced populations, and the destruction of infrastructure. To say such events "benefit" investors of gold is to completely look over these monumental consequences.
• Ineffective Strategy:
  
  
  • From the investment perspective, the hope of driving up the price of gold through war is also impracticable. History has shown that even though gold may rise in nominal terms, in real terms it would actually fall when adjusted for inflation. Those investors who invested in the hopes of a sky-high jump in gold's price due to a global conflict will find themselves receiving falling returns in real value.

Not only is the concept that World War III could be a golden ticket for gold investors historically inaccurate, but it is also ethically flawed. While gold has proved to be a great investment within a portfolio, history reveals its real value plunged during times of war when taking inflation into account. Investors should approach such predictions with caution, and look to prioritize investment strategies that don’t need to rely on human suffering in order to generate returns.

Instead of speculating on the horrors of war, let us hope for peace and stability, which is far better for humanity, the economy, and even for gold, than any short term gains in the price of gold can ever be.