Turkey Downs Russian Jet. Will Gold Rise?

Investment Advisor & Author @ Sunshine Profits
November 25, 2015

goldYesterday, Turkey shot down a Russian warplane. What does it mean for the gold market?

Turkey said that it had shot down a Russian fighter jet near the Syrian border after it had violated its airspace. Russian President Vladimir Putin claimed that the plane had been attacked when it had been inside Syria, called the incident “a stab in the back by the terrorists' accomplices” and warned of “serious consequences”.

We will probably never know what really happened. The plane crashed inside Syria, but Turkey claims that the jet had been shot down in Turkish airspace. It seems that the Russian jet indeed violated Turkish airspace, but U.S. officials said that it had been “in Turkish airspace only 2 to 3 seconds, a matter of seconds”. Well, we are not experts in military defense and geopolitics, but the whole intervention in Syria looks a bit absurd to us. Officially, the U.S., France, Turkey, and Russia are all fighting ISIS in Syria, but Turkey buys oil from ISIS, while Syrian rebels shot down a Russian helicopter using U.S. weapons. Even more absurdly, the U.S. wants to overthrow Syrian Bashar-al-Assad, and ISIS wants the same. So who is really fighting whom?

Let’s go back to the gold market. The shiny metal did not significantly react after terrorist attacks in Paris. However, it seems that this time may be different. Why? Well, the reason is that the shooting down was the most serious publicly acknowledged clash between a NATO member country and Russia in half a century. In contrast to the tragic events in Paris, this incident raises direct geopolitical risks for the United States.

Gold is a bet against the U.S. economy, so it may make perfect sense that it reacted more in response to increased military tensions between NATO – and thus the U.S. – and Russia.  Indeed, the yellow metal gained yesterday for the first time in three days. Today, gold extended gains. Bullion for immediate delivery rose 0.5 percent to $1,080.95 during Singapore trading. However, this safe-haven demand should be only temporary. Usually, geopolitical incidents are only short-term risks. This is why the price of gold often spikes at the beginning of a new crisis, but after a while falls again, sometimes to the pre-crisis level.

To sum up, Turkey shot down a Russian warplane, after the aircraft probably violated Turkey’s airspace. The price of gold increased after this incident, but investors should not expect a robust long-term rally (unless, of course, the conflict escalates and transforms into World War III, which is fortunately rather unlikely).

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Arkadiusz Sieron

Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Arkadiusz Sieroń received his Ph.D. in economics in 2016 (his doctoral thesis was about Cantillon effects), and has been an assistant professor at the Institute of Economic Sciences at the University of Wrocław since 2017. He is a board member of the Polish Mises Institute of Economic Education, author of several dozen scientific publications (including in such periodicals as the Journal of Risk Research, Prague Economic Papers, Quarterly Journal of Austrian Economics, and Research in Economics), and a regular contributor to GoldPriceForecast.com and SilverPriceForecast.com. His two books, Money, Inflation and Business Cycles and Monetary Policy after the Great Recession, are both published by Routledge. Arkadiusz is also a certified Investment Adviser, a long-time precious metals market enthusiast, and a free market advocate who believes in the power of peaceful and voluntary cooperation of people.

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