Gold And Geopolitical Turmoil

Israeli armed forces continue to attack Hamas targets in the Gaza Strip and may be preparing for a possible invasion after killing 300 Palestinians in three days of attacks.

Israel says that the military action is in response to ongoing rocket and mortar fire that intensified after Hamas, the Islamist group in charge of the enclave that Israel quit in 2005, ended a six-month ceasefire a week ago.

Meanwhile, political tensions between India and Pakistan also continue to heat up amid deteriorating relations since the terrorist attacks a few weeks ago. Both countries have reportedly moved troops to the Indian-Pakistani border.

Amid rising political tensions around the world, investors are taking a classic flight to quality… they’re buying gold.

A Flight to Quality… An Investment in Gold

Investors will likely ring in the new year with more gold in their pockets than usual. The recent flare of hostilities in the Middle East has spurred a robust bout of safe-haven investing around the world, lifting gold prices for the fourth consecutive week.

Gold prices increased over 2% in overnight trading to the strongest levels since early October.

The current tensions in the Middle East are reminiscent of the geopolitical strife that led to the mania buying stage of the 1970s’ gold bull market. During that time, the Russian invasion of Afghanistan and the Iranian revolution prompted investors to seek a safe haven in gold. These geopolitical concerns pushed gold prices 200% higher in the six months leading to January 1980.

Geopolitical Turmoil: Safety in Nuggets

Gold is one of the few investments that can survive-and thrive-during times of geopolitical strife. When the world faces some sort of threat, investors flock to gold because of its intrinsic value.

In the immediate aftermath of 9/11, the financial markets fell apart. The Dow Jones (^DJI) lost 15%… the NASDAQ (^IXIC) fell 16%… and the S&P 500 (^GSPC) shed 12%.

Meanwhile, gold prices increased 8.5%.

We can expect to see gold prices rise significantly if tensions in the Middle East keep escalating. In the meantime, we continue to recommend buying a position in gold at current levels.

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