The Pure Gold Company

Peace is rarer than war, but often wars can feel removed from the comforts of western democracies. The tragedies that have dominated the news the last few weeks are hard to fathom in a comfortable home in the UK. And while we should all be doing what we can to support the aid agencies on the ground in the Middle East, on a personal level the impact of war on wealth and investments is a necessary consideration.


The uncertainty of war always has an impact on stock markets, although the severity depends on the perception of the risk. The invasion of Kuwait by Iraq in 1990 sent the S&P 500 stock index down 18% and oil prices doubled, although markets calmed somewhat when US forces began to amass on the border ahead of Operation Desert Storm. The state of the market before a war will also impact on how dramatically it moves, for example the dot com bubble had already depressed stocks before the US invaded Iraq in 2003.

More recently, London stocks plunged 6.7% in just one week after the start of the Russian invasion of Ukraine in 2022. While most markets recovered relatively quickly, the long-term effects of the subsequent inflationary pressure and cost-of-living crisis has dampened economic growth in many countries.

In the current situation, global market reaction has been very modest. While Tel Aviv stocks and foreign-listed Israeli companies with exposure to the economy there have suffered declines, overall, markets around the world have been influenced more by internal economic factors and have largely shrugged off the distant war.

What has been affected more noticeably is the price of oil which rose around 7% shortly after the war began, although it has retreated since then. Middle East conflict will always impact energy prices because almost half of proven global oil reserves are there, and any conflict risks interruption of the flow of oil around the world.

Higher oil prices have an impact across the world, most notably on inflation which has only just started to ease after rampant rises around the world throughout 2022 and early 2023. If the conflict in Israel and Gaza spreads beyond its current borders, the impact on energy supply and prices could herald another period of rising costs, hitting global businesses and adding recessionary pressure to already fragile growth.

The spectre of a more global war is still hypothetical, and most stock markets are not responding recklessly, but the risks grow as long as the conflict continues. Most people have at least some, possibly a lot of their assets in the market and volatility can be value destructive, especially if they need to realise their assets now, for example if they reach pension age.

The effect of war on business

War can have a positive effect on businesses if they are in the market for conflict paraphernalia like guns and tanks, but often the fallout for the wider business world reflects the economic strain that even distant wars create. Under pressure from increased supply chain costs, inflationary pressure from the rising price of fuel and other goods may stifle corporate growth, and could also lower their risk appetite and decrease M&A activity. The effect of the Russia/Ukraine war on food producers hit by the already soaring fertilizer prices, a large proportion of which is manufactured in Russia, has been a key reason for food inflation over the last year.

The oil price also rose then, as it is rising now, and the combined effect of two conflicts putting pressure on global energy prices means businesses and consumers can expect to feel the pinch longer and deeper.

Where the pressures overwhelm businesses, failures or curtailments have an impact on pension fund investments, stock markets and the health of the wider economy, affecting investments in many sectors.


War’s impact on property is not a direct one. While the war itself won’t reduce or raise the price of houses in countries outside of the war zone, the pernicious effect of inflation and interest rates can have a substantial impact on property prices.

The UK government, and central banks around the world, have been forced to raise interest rates emphatically over the last two years in an effort to curb high inflation. While the Russia/Ukraine war wasn’t the only cause of that inflation, the effect of the war on energy and food prices is indisputable. Rising rates during a cost-of-living crisis has had a real impact on the property market in the UK where year-on-year house prices have been falling for the past eight months according to mortgage lender Nationwide.

The outlook, even before the current conflict in the Middle East, was for this decline to continue, whether precipitously or gradually. A return of extreme inflationary pressure if oil prices continue to rise and the conflict escalates can only be bad news for home-buyers hoping the Bank of England might lower rates following its 14 consecutive rate rises between 2021 and 2023.


The inflation rate in the UK has remained stubbornly high. Not as high as the October 2022 peak in the Consumer Price Index of 11.1%, but stubborn nonetheless at 6.7% in September, the most recent data available. It is also the highest inflation rate among developed countries. Inflation erodes the value of cash, so unless bank interest rates are paying more than the inflation rate (they’re not), then holding cash under your mattress or in the bank is a good way to lose spending power.

Gold has historically been a reasonable hedge against inflation over the long term, rising as the cost of goods rise and maintaining purchasing power where currency is being eroded by the increasing price of goods.

That said, over the shorter term the gold price fluctuates in response to many economic and political stimuli, including inflation, and the correlation is not perfect. Still, maintaining gold in a portfolio of strategic inflation hedges is a prudent move, allowing diversification and safe-haven advantages.


Gold has a long and venerable history of retaining or increasing its value during times of instability or uncertainty. It is called a safe-haven asset for good reason, and it is recommended as part of an investment portfolio because it often rises when other assets like stock are falling. The war in Ukraine and the outbreak of hostilities in late February 2022 sparked a flight to safe-haven assets, pushing the gold price up 18% from the beginning of February to early March of that year. Silver rose over 20% in the similar period.

Now, gold has once again proved to be the safe-haven asset many investors are turning to amid the Israel/Gaza conflict. The gold price has risen over 7% in sterling terms since the outbreak of hostilities. It’s clear that while stocks are holding on, investors fear the risks of contagion and are looking to hedge against uncertainty with an asset that tends to rise when other assets fall. 

Physical gold assets sit outside the banking system, reducing counterparty risk, and under certain circumstances there may be tax advantages to owning the precious metal. Certain forms of gold are capital gains tax-free (coins minted by the Royal Mint) and investment-grade gold is also VAT free.

The impact of the Ukraine war was both immediate and long-term. The impact of the Israel/Gaza conflict can only add further inflationary pressure just as it was beginning to alleviate. And if the conflict spreads further, stock markets will have to react more forcefully. Against this backdrop it would be prudent to hold gold within a balanced portfolio and let it’s safe-haven properties shine. 

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