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By Faith Ashmore, Benzinga
It's undeniable that this year has been wrought with geopolitical unrest, uncertainty about the upcoming election and concerns about recession. Pundits, politicians and everyday people have been wondering how the global economy will fare in light of the state of current affairs. And people aren’t wrong to be weary if history were to be taken as an indicator.
Historically, markets have often exhibited resilience in the face of "war shocks" such as armed conflicts and geopolitical tensions. However, the mere possibility of a war can introduce market volatility and lead to potential declines. One prime example of this is when concerns over a military conflict between the U.S. and Iran in 2020 temporarily drove up the price of oil and caused stock values in the energy sector to fluctuate. The fear of war can lead to uncertainty over how businesses and governments will be affected, making traders and investors cautious. As a result, markets may experience temporary setbacks or long-term shifts in response to war fears, depending on the severity and duration of the perceived threat. Even a cold war threat is enough to impact global markets; for instance, during the China-U.S. trade war escalations in 2019 and 2020, the uncertainties negatively affected both businesses and markets.
While fortunately escalation was avoided between the U.S. and Iran in 2020, the Russian-Ukraine war and the Israel-Palestine conflict are similarly causing ripples through the economy worldwide. Since the Russian invasion of Ukraine in February 2022, global economies have taken a hit. The World Trade Organization has warned that the prospects for the global economy have darkened since the war began, especially where food and fuel are concerned due to the country’s large export economy.
Similarly, the Israel-Palestine war is worrisome not just because of the localized humanitarian crisis but also the global economic impact. The conflict has the potential to disrupt global trade and financial markets, leading to increased volatility and uncertainty. The displacement of large numbers of people and the destruction of infrastructure can also have spillover effects on regional stability and economic development, which can indirectly impact the global economy.
While the future of these conflicts is uncertain, the U.S. election might also add to market volatility due to the anticipation and uncertainty surrounding election outcomes. Investor uncertainty tends to rise during election cycles as candidates espouse different policy agendas, leading to speculation about potential changes in regulations, taxes and government spending.
This isn’t the first time that conflict in the Middle East had significant global impacts. In the 1973 Arab-Israeli war, the countries supplying oil to the US, like Iran, decided to halt their supply, resulting in a sharp increase in gas prices and causing a prolonged period of stagflation. This led to long lines of cars waiting for gas, only to discover that the pumps had run dry which caused widespread fear. Additionally, during this time, the value of the dollar decreased significantly while gold became a highly effective hedge. The price of gold skyrocketed from $42.22 per ounce in May 1973 to $850 per ounce in January 1980, an increase of more than 20 times.
With these things in mind, investors often turn to diversification to help protect their savings. Historically, in times of uncertainty or socio-political turmoil, gold has held its value or performed well. For instance, after the Brexit vote in 2016, the price of gold increased by over 10% in just one month. People who are concerned about the potential collapse of the global economy or other threats to a government's ability to support its currency may find gold ownership appealing. Gold could also be an attractive investment to many during election years, which can oftentimes cause higher volatility in an economy.
Investing in gold and navigating the gold market can be challenging for inexperienced investors. When considering a gold investment, the first step is to find a reputable dealer. Traditional financial institutions may not deal in gold, so it's important to research and select a trustworthy precious metals dealer, bank or brokerage firm. It is crucial to check online ratings, trade journals, and any complaints to ensure credibility. For instance, Preserve Gold, an established U.S.-based precious metals firm, has a spotless BBB record and positive reviews. They specialize in helping individuals and families diversify and protect their wealth through tangible precious metals like gold, silver, platinum and palladium. In addition to purchasing for home storage, a Gold IRA can help you leverage physical gold in your retirement account.
Preserve Gold differentiates itself through its core principles of integrity, transparency, and consistency. The company says these principles are the foundation of its customer relationships and emphasizes its commitment to providing dependable services. Their dedicated team assists clients in making educated purchasing decisions while prioritizing security and a seamless transaction experience.
With the New York Fed recession probability indicator showing that there is still a 56% chance of a U.S. recession in the next 12 months, portfolio diversification is as important as ever. Gold investments have historically stood the test of time and have been seen by many as an important component of investment strategies for centuries. Gold has historically been seen as a reliable store of value and a hedge against economic uncertainty. Its durability, scarcity and intrinsic value have made it a trusted asset for helping to protect wealth in uncertain times. Despite the emergence of modern financial instruments, gold continues to play a significant role in helping provide stability and diversification to portfolios, especially in an ever-changing economic landscape.
This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.
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