Gold in Wartime

soldiers in forest

Though the world’s major governments have abandoned the gold standard, most countries continue to maintain significant gold reserves to hedge against inflation and economic uncertainty. National gold reserves also prove that otherwise-unbacked currencies have an implicit guarantee of something beyond a government’s promise. During crises – such as a war – governments and individuals alike often turn to gold as a safe-haven asset, using it to prepare for and weather the worst-case scenario.

War can have significant impacts on the price of gold. A nation’s gold reserves can be an important indicator of its financial health and creditworthiness and a valuable tool during economic volatility.

Gold in wartime

Gold and other precious metals are widely regarded as a safe haven investment that protects against inflation. Unlike currencies, gold and precious metals are limited to a finite supply. Governments can’t print them; they can only be mined, bought, sold, stored, or traded. In addition, gold’s value is easily recognized, giving it universal appeal to almost anyone, anywhere – throughout human history.

Thousands of years ago, gold rose to prominence as a medium of exchange in Egypt around 1500 B.C. Then, as now, gold was prized for its beauty, scarcity, malleability, and resistance to tarnishing. Gold continues to be an extremely valuable asset – so much so that gold was, through much of the 20th century, often used as the benchmark for determining the value of a unit of currency.

Gold has continued to serve as a form of currency and, until relatively recently, was used by many major countries to back their paper money and other debts. The gold standard held governments accountable for how much money they printed, limiting inflation by tying the money supply to gold reserves. A country’s currency was inextricably linked to its gold reserves with the gold standard.

War can impact an economy in many different ways, including causing inflation and even a recession. In both situations, gold acts as a safe haven asset, so naturally, war causes governments and investors alike to flock to the yellow metal.

Wars require countries to spend more money and increase production to fuel the war effort. But, when the war is over and the demand for increased production comes to a screeching halt, people may suddenly find themselves out of work. Buying gold before and during wartime is a well-known defense strategy against economic volatility and inflation.

How nations use gold

Why do national central banks own gold?

Adam Glapinski, president of the National Bank of Poland, explained: “Gold is not directly linked to any nation’s economy and can withstand global unrest.”

In Ray Dalio’s book Principles for Dealing with the Changing World Order, he explains that, for nations, owning gold is:

…important because no trust—or credit—is required to carry out an exchange. Any transaction can be settled on the spot, even if the buyer and seller are strangers or enemies. There is an old saying that “gold is the only financial asset that isn’t someone else’s liability.”

When countries are at war and there is no trust in their intentions or abilities to pay, they can still pay in gold. So gold (and, to a lesser extent, silver) can be used as both a safe medium of exchange and a safe stronghold of wealth.

The United States owns 8,966 tons of gold and 27,500 tons of silver in its precious metals reserves.

The U.S. and other nations maintain gold reserves to reduce financial risks and diversify their assets. Gold is an ideal choice for diversification because, as the old saying Dalio mentioned in his book goes, “gold is the only financial asset that isn’t someone else’s liability.

Top Analysts Make Huge Christmas Predictions for GoldCurrency is basically a promise to pay – in other words, a liability. A nation can increase the supply of its own currency any time they want by printing cash. The value of those newly printed bills declines (we call this inflation, as in, inflating the money supply), making it easier to pay off debts. Lenders find themselves “repaid” in the newly-printed currency that subsequently has less value. On the other hand, gold is a universal medium of exchange whose supply, and therefore its value, cannot be changed simply by making more.

Inflation, which lately has been a significant problem across North America and Europe, often drives investors’ demand for gold.

Like individual investors, nations also use gold to diversify their holdings. Gold isn’t the only asset governments keep in their coffers to protect against downside risk. Most governments also hold reserves of strategic commodities, like oil and rare-earth elements – usually commodities that are vital to national interests and vulnerable to supply disruption. In addition, nations usually own foreign currencies as well.

In the case of countries like Russia, Venezuela, and Iran, gold can protect a country’s economy from sanctions and other threats. Just like individuals, central banks can use gold to facilitate international trade in both good and bad times, acting as a universal medium of exchange. If all else fails, the yellow metal can be a currency of last resort, which is one of the reasons survivalists often include the gold in their plans to prepare for a worst-case scenario.

Gold can serve central banks in many of the same ways it serves individual investors. Gold is collateral, an inflation-resistant store of value, a universal medium of exchange, and the trustless “money of last resort.”

As of 2022, the United States’s central bank, the Federal Reserve, owns significantly more gold than any other nation, with over 8,000 tons. The number two owner of gold is Germany’s central bank, with less than half as much gold as the U.S., followed by Italy, France, and Russia. Following the annexation of Crimea in 2014, Russia began aggressively buying gold, tripling its gold holdings in just eight years.

Central banks have been hoarding gold (especially in Russia)

Around the world, central banks have quietly been buying gold, amassing thousands of tons over the last decade. In 2021, central bank gold holdings reached 31-year highs after buying 463 tons of gold. Why? Consider:

  1. Global sovereign debt is at an all-time high, thanks to the worldwide response to the Covid panic.
  2. Global inflation rates are near or surpassing 40-year records, thanks to point 1 above.
  3. Nations are reacting to the joint U.S.-EU financial sanctions against Russia, specifically the freezing of Russia’s foreign-reserve currency accounts, by stocking up on an asset that can’t be frozen or “canceled” – more on that below.

How sanctions and SWIFT bans affect gold reserves

Much of the Western world’s powers have imposed sanctions on Russia due to its invasion of Ukraine, dealing a crippling blow to the Russian economy. In March 2022, the United States specified that its sanctions extended to any gold transactions. While the sanctions may make it more difficult for Russia to sell its gold, it is likely little more than an inconvenience – because gold is the one asset virtually everyone wants.

According to gold analysts, Russia can use tactics similar to those of Venezuela when the U.S. slapped Venezuela with sanctions in 2019. For example, Venezuela sold gold to other countries or simply used other nations as financial intermediaries. Analysts also note that Russia may possess gold that isn’t listed as part of its “official” reserves but could be used for international trade.

SWIFT (Society for Worldwide Interbank Financial Telecom) is the linchpin of the global financial system, connecting banks and other institutions worldwide. SWIFT is the international equivalent of ACH. Every day, trillions of dollars move through the SWIFT network, which serves nearly every country, state, and territory on the planet. Earlier in 2022, over half a dozen Russian banks were removed from the SWIFT network. The ban is oddly reminiscent of the situation in Iran, where, ten years ago, SWIFT disconnected from the Iranian banking system.

While removing Iran from SWIFT may have hurt the nation’s economy, the Iranian central bank – like the Russian central bank today – stockpiled gold in preparation for sanctions related to its nuclear program. This foresight helped Iran prepare its economy for the SWIFT ban in 2012 and likely, could have propped up the Iranian economy for years. In Russia today, the situation seems very much the same.

Though the U.S. has the ability to isolate Russia’s economy and issue sanctions on trade, there’s no way for the U.S., or any other country, to prevent Russia from using its gold short of a ground invasion and physically taking Russia’s physical gold reserves.

Though Russia is sustaining an expensive war that has become even more costly due to sanctions and the SWIFT ban, it can always spend its gold or other reserves, like foreign currencies. With roughly $140 billion worth of gold, Russia may have to spend some of its gold reserves if the war drags on. However, Russia seems far more reliant on its black gold than yellow gold, as it continues to sell billions of dollars worth of oil to the European Union (EU).

What all this does for gold’s price

Wartime usually leads to an increase in gold’s price due to higher demand from central banks and individual investors alike. During a war or any other conflict, crisis, or disaster, there is usually a spike in the price of gold as people shy away from paper currencies and seek out store-of-value assets like gold.

History can share with us several examples of gold’s price rising in response to global conflicts, which we’re seeing now in the war between Russia and Ukraine. Stoked by geopolitical crises, including the Iranian Revolution and hostage crisis, Russia’s invasion of Afghanistan, and the United States Federal Reserve’s unparalleled rate increases, the price of gold skyrocketed by over 120% in 1979.

gold prices 1970s


When the U.S. took military action in Afghanistan in 2001, gold prices rose quickly, increasing by over 20% in 2002. In 2003, when the U.S. declared war on Iraq, gold continued its ascent, gaining over 22% that year. For over a decade, the price of gold rose steadily until, in 2013, investors began moving their money into other assets.

gold prices 2000s kitco


The current conflict between Russia and Ukraine appears to be following the same trends we’ve witnessed historically – namely, a move from equities and the U.S. dollar into gold. Since the Russian invasion of Ukraine in late February 2022, gold prices have soared near all-time highs.

gold prices 2022


War brings uncertainty and increased government spending, both of which lead to a desire for safe-haven assets like gold. With persistent demand from central banks and individual investors, gold’s price moves north. If the war in Russia continues, we can only expect the demand to remain strong until the dust settles and turmoil is replaced by more stable times.

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