Does Another Iraq War Spell Another Run on Gold?

Here we are in 2014 and another US President is crafting yet another plan for another conflict in the Middle East. Defeating violent ideologies is never easy and the fight on terror continues to be very costly. What is now unfolding in Iraq and Syria will have wide-reaching implications for global security as well as international money markets, world economies, multi-national currencies, and universal indebtedness.

We have all seen reports about the gruesome beheadings of US journalists in Iraq, and we’ve been introduced to a new, violent threat called ISIS (Islamic State of Iraq and Syria) and ISIL (Islamic State of Iraq and the Levant), a radical Islamist group that has declared a caliphate. Their jihadist-fueled killings have shocked the sensibilities of the world. While they share some of the basic ideologies of Hamas, Hezbollah, and al Qaeda … they are better financed, better organized, better equipped, and far more brutal than anything the world has previously seen.

So are we on the brink of war? Whether declared or undeclared, military action is expensive and America’s defense budgets are at record lows. Any US involvement will be largely funded by borrowing as it has been for the past decade. This will ultimately result in higher debt, higher interest on our existing debt, and a higher debt to GDP ratio.

The investment lesson of wars past is to hold something solid. When the US launched Operation Iraqi Freedom back in late March of 2003 the price of gold was just $335.60 an ounce. When Saddam Hussein was captured in December of that year, it had risen to $408.70. By the time he was hanged by his own people a little over a year later, gold jumped to $636.90 an ounce. With the US troop surge of 2007 gold rose again and when the surge brigades were withdrawn in July of 2008, gold had rallied to an astounding $946.70 an ounce. By the time the last US troops were officially withdrawn from Iraq, gold would stand at $1587.70, rising more than 373% from the start of the military campaign.

What awaits the world on the new front in Iraq and Syria is far different than what America and her allies have previously seen in the Middle East. By all accounts the ISIS fighters are more sophisticated and exude advanced military prowess. As an army, they are flush with cash. They are adept at smuggling, kidnapping, mass killings, and guerilla tactics that make air strikes less effective. They are masters of propaganda and use social media to not only spread fear and intimidate but to recruit from around the world … and their ranks are dramatically swelling. Perhaps most disturbing is their proficiency with drones and the technologically advanced weapons, vehicles, and munitions that were left behind after our 2011 pull out.

There’s no doubt that these are serious times for the world. Global conflicts of this nature can fuel financial instability, unsettle the world markets, and shake investor confidence. In this atmosphere real assets like gold, oil and commodities become a critical part of protecting your financial portfolio.

Gold, in particular, has been the last vestige of war … whether among its spoils, part of its exodus, or a surviving fortune stashed in foreign safes. It protects against uncertainty and despite the manner of the conflict, the nature of the outcome, or the spirit of the aftermath … gold always wins.