The Ukraine Crisis: Will another Cold War launch another Gold War?

Written by Scott Carter

Posted on 04 Mar 2014

Ukraine Crisis  smoke clouds

Is a new Cold War brewing? Some 16,000 troops have been deployed by the Russian Federation via ship, plane and helicopter into Crimea, which is a parliamentary Republic within Ukraine. Why did the Russians do this? They claim they were asked to enter the sovereign nation by ousted Ukrainian President Viktor Yanukovych to stabilize the region which has been experiencing months of public protests. The protesters have been calling for closer ties with the European Union. Russia asserts that Ukraine is on the brink of civil war, and that they have a right to protect their interests in the region.

US Ambassador Samantha Power says that Russia’s claims are untrue and categorizes their military action as a clear violation of international law. Russia’s deployment of troops has been strongly condemned by the United States, the EU, the G7 nations, and the UN Council.

The Kremlin’s actions over the past few days have clearly angered the world and the West causing many to suggest that we may be entering a new “Cold War.” After all, this is clearly the biggest crisis that the West has had with Moscow since the close of that chilly period of tension that ended more than twenty years ago. This new “Cold War” has the potential to significantly impact world trade and the global economy. Since it has already rattled Wall Street, the historical relationship between Russian aggression and the price of gold merits close examination.

The first Cold War is generally considered to be the period from about 1947 to 1991. During this timeframe the price of gold moved from about $35/oz. in 1947 to $363/oz. in 1991 representing an increase of over 935%. This was a windfall for those that held gold long-term or sought its safe haven protection for their savings and/or retirement accounts.

Perhaps the most stressful episode during this timeframe was the 13-day confrontation known as The Cuban Missile Crisis which triggered unprecedented demand for gold. From October 14th to October 28th of 1962, Russia and Cuba entered into a war of wills with the United States over the placement of Soviet nuclear missiles in Cuba. The crisis and the accompanying oil embargo of the 1970’s pushed gold from under $35/oz. to over $800/oz. by 1980. As a matter of fact, during two days of the crisis (October 22nd through 24th) over $60 million worth of gold was sold.

The world has always turned to gold during times of global crisis, international conflict, worldwide disaster, and currency collapse. It is an asset that thrives on volatility, instability, and prolonged hostility. It is also strongly correlated to the price of crude oil and all of these factors are in play as the situation in Ukraine continues to unfold.

History clearly demonstrates that gold has been a store of value and the investment refuge of choice during the prior Cold War period and will continue to be a critical safe haven as this new era of frigid relations with Russia plays out.

Image source: BBC