The ongoing US-Iran war has investors checking the value of their ASX stock portfolios more frequently than usual. That's fair enough. This conflict, aside from the tragic human cost and flow-on effects on fuel prices, has elicited some of the most dramatic volatility we have seen in years. It is not uncommon these days for major stock market indexes like the S&P/ASX 200 Index (ASX: XJO) to move by more than 1% on any given trading day. It's a similar story with gold and other precious metals, too.
Since the start of March, the ASX 200 has lost about 7.1% of its value. Over on the US markets, the S&P 500 Index is down by roughly 4.2%. These falls have obviously seen the value of many ASX and US stocks decline concurrently. But what has been far more interesting, at least in my view, has been the trajectory of the gold and silver markets.
If you cast your mind back to earlier this year, gold and silver were riding high. Gold saw a new all-time high right at the start of this month, with gold topping US$5,600 per ounce for the first time ever on 1 March. Silver hit a record high of its own back in January, rising above US$120 per ounce.
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Precious metals collapse amid US-Iran war
However, the outbreak of the war saw both precious metals collapse. Gold got as low as US$4,300 just last week, while silver went under US$66 an ounce at about the same time.
These falls have seen investors take major haircuts on their gold and silver positions. This might seem strange to many observers. Precious metals are supposed to be 'safe-haven investments'. Indeed, demand for gold has historically risen in line with global geopolitical tensions or economic uncertainty. And we've seen huge spikes in both this March.
So why are gold and silver collapsing at precisely the time that they should, at least in theory, be attracting dollars hand over fist?
Well, it's hard to know for sure with these things. Perhaps investors are anticipating a global rise in interest rates to combat the likely inflation spike that higher energy prices will probably bring. As zero-yielding investments, metals like gold and silver often suffer under high rates.
I have a theory, though, and if it's true, we might see gold back to US$5,600 or even higher before we know it.
Why gold could bounce back to US$5,600
At the onset of a black swan event like the initial American attack on Iran, fear-filled investors often duck for cover in a 'flight to safety'. The traditional asset for doing so is not gold, but US dollars. US dollars are more liquid than gold or silver and tend to be where investors shelter from short-term uncertainty.
However, as investors digest a crisis and the initial fog clears, the paradigm can change. Back in 2020, the initial onset of the global COVID-19 pandemic saw gold drop from almost US$1,700 per ounce down to under US$1,500 in the first few weeks of global lockdowns. Gold only began to push notably higher from its pre-pandemic state a few months later, once the initial fear had subsided and the picture was clearer.
We saw a similar pattern back in the global financial crisis of the late 2000s.
No one knows when the US-Iran war will end. But we do know that it will likely have a profound effect on global energy markets for months to come. I think gold will rebound to its former levels, or even break new ground, over the months ahead, just as it did in past crises. That's why I'm holding on to my ASX gold shares. Of course, I could be wrong. But the best thing we can do as investors is learn from history. And I think, in this case, the lessons are there for those who are looking.
