The WWIII Trade
As war rages on in Iran and Israel, equities are down overall while defense stocks are surging, and both gold and silver have bounced, followed by volatile corrections. You could take a lot of guesses about how to trade the war and chaos—but the surest chaos bet will always be precious metals, especially in the longer term.
All eyes are on the Middle East as and the world wonders how the conflict will escalate—and both when and how the US and other major powers will get directly involved. Nation-states like China keep aggressively buying gold as tensions explode, and they won’t publish their true holdings because they don’t want the rest of the world to know just how hard they’re stacking.
During similar geopolitical crises, gold and silver have historically rallied. In the late 1970s into 1980, during the Iranian Revolution and the subsequent hostage crisis, gold prices surged. Silver also saw dramatic gains, peaking in 1980, driven by both geopolitical fears and speculative trading by the Hunt brothers. More recently, in 2019-2020, amid US-Iran tensions following the killing of Qassem Soleimani, gold rose dramatically. Silver followed, with even more spectacular gains after the historical COVID-era “stimulus” cycle that flooded the system with freshly-printed money.
Gold vs USD, 1978 to 1982
The latest escalation in the Israel-Iran conflict is dramatic, violent, and has the world on edge, with predictable volatility in gold and silver. On June 13, following Israel’s airstrikes on Iran’s nuclear facilities, gold prices spiked to $3,444 per ounce. It hit numbers not seen since last April in various currencies across the Middle Eastern, including the Israeli Shekel, Iranian Rial, Turkish Lira, and Saudi Riyal. Silver’s bull run, characteristically more volatile than gold’s due to factors like lower liquidity and industrial uses, has held above $36 per ounce, marking a 13-year high.
The Israel-Iran conflict can disrupt global markets in many ways, with exponentially greater disruption if it escalates into a genuine World War 3-level scenario. Iran’s oil production is at risk, with fears of a closure of the Strait of Hormuz driving oil prices up. China is an especially important piece of this puzzle, having relied for years on cheap crude oil imports from Iran. Since the Israel-Iran war broke out, crude has spiked:
Crude Oil Futures, 1-Month
As the world’s largest oil importer, China’s reliance on Iranian oil is a huge motivator for them to remain firmly on Iran’s side, as they historically have been. But it’s also a potential impetus for them to help stop the conflict and simultaneously emerge as both a peace broker and a force of humiliation for the Trump administration, ever-trying to brand itself as the ultimate “deal maker.”
As is often the case, China is leading the pack among central banks stockpiling gold at unprecedented rates. Global central bank purchases reached over 1,000 tons in 2023, the second-highest on record as the world unites in diversifying away from the US dollar. Meanwhile, Jerome Powell has announced that interest rates will stay where they are for now, citing weak growth, weak job market, and stubbornly-high prices. He’s also blaming Trump’s tariff politics as a reason that consumer prices could remain stubbornly high.
But really, it’s the Fed that causes inflation by expanding the money supply, not tariff policies. And in a bid to appear “neutral,” Trump begging for lower interest rates actually makes it less likely that we’ll get them. But all the Fed really does, even without forcing rate cuts in the shorter term, is suppress interest rates far below where a free market would set them.
As Peter Schiff recently said on X:
“The Fed should not lower interest rates. But if Trump’s goal is to get the Fed to cut anyway, his constant insults and demands that Powell do so actually make it less likely the Fed will cut, as such a move may be seen as politically motivated rather than economically justified.”
Either way, the Fed will have to lower rates eventually, since the economy is too addicted to a low cost of borrowing to weather a “higher for longer” scenario forever. It’s currently penciling in two cuts before the end of the year. When they do, gold is likely to surge yet again. In the meantime, the Treasury is buying back billions of dollars of its own debt, battling the Fed in a monetary and fiscal push-and-pull to keep inflation under control while still finding ways to flood the system with liquidity.
The Israel-Iran conflict, now in its most intense phase since the 1979 revolution, shows no signs of de-escalation. With both nations engaging in direct strikes, the risk of a broader war looms. These sorts of prolonged uncertainties have always sustained elevated gold and silver prices.
Precious metals offer protection against currency devaluation, inflation, and the unpredictable fallout of a potential regional or even a global war. And if you already live in a country where the bombs are dropping, should you survive, gold will be your only hope to preserve any of your wealth as everyone races to withdraw their money, financial institutions are bombed, or cyberattacks erase whatever assets you thought you had at the bank.
In a world of chaos, gold and silver are timeless hedges. Whether you’re a retail investor or a nation-state, the WWIII trade is clear: when violence breaks out between nations and kings, whichever countries remain standing and whichever king keeps both his head and his crown, gold is always the victor.
