What happens to gold in an oil crisis? It goes up. A lot. When the first crisis hit back in 1973 in the wake of the Arab-Israeli war, nothing happened immediately. But then as the impact of the embargo began to be felt in the US and in particular as oil began to be rationed that changed.
The price of gold doubled in less than four months from $85 an ounce to $180, with the peak coming just as the embargo ended. The price then eased slightly. But as GMP Securities point out, the end result was that it stabilised in a much higher range $130-$150 than it had previously held.
The same thing happened the next time round. As the Iranian Revolution and then hostage crisis developed, the gold price spiked to $850: the rise started as the Shah lost control and kept going when Carter deregulated the oil price. Then it went parabolic when the US embassy in Tehran was seized, topping out only as the Carter Doctrine (which stated that anything that threatened US energy supplies threatened US security) was announced.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, when gold fell back, it didn't, as you might have expected it to do, fall back to $200. Instead it moved into yet another higher range around the $600 level. On both occasions the rise and its new high range was driven by two things, geopolitical risk perceptions and the inflation triggered by the rising price of oil.
So what now? You could argue that we haven't yet got an energy crisis: the price of oil is up but not yet startlingly so and at the same time energy dependence is not quite what it was back in 1973. But what if the crisis in the Middle East spreads? According to George Albino of GMP, the same thing will happen again: inflation and a geopolitical risk premium will once again "have a very significant impact" on short term and, just as in the 1970s, on medium term gold prices too.
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
Inheritance tax receipts jump 11% even before Autumn Budget overhaulOfficial figures show inheritance tax receipts are rising even before the chancellor’s changes to reliefs
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
