Gold, War, and Volatility: Navigating History in Financial Storms

As the gold price explodes upward in 2024, it reminds us of bygone historic eras. During the violent swings of financial history, gold emerges not only as a precious metal but as a steadfast companion for investors weathering the storms of war and chaos.

Newton’s Legacy: The Gold Standard (1717)

Our journey begins in 1717 with Sir Isaac Newton, whose genius laid the foundation for the gold standard. Newton became the warden and later Master of the Royal Mint in 1696 in England, and was tasked with stabilizing the english currency, which had been plagued by counterfeiting and fluctuations in value.

The Financial Revolution in 18th-Century London

At the dawn of the 18th century, London was rapidly becoming the epicenter of a financial revolution. The establishment of the Bank of England in 1694, a few years after the English revolution in 1688, had led to the parliament getting primacy over the crown. Along with this came innovations in banking, credit, and things like government bonds, which transformed the city into a hub of economic activity.

Paving the way for British financial dominance

At the Royal Mint, Newton operated within a landscape where fiscal reforms were not only welcomed but necessary to support Britain’s growing imperial ambitions and fund its wars. The burgeoning financial infrastructure enabled greater liquidity and confidence in the British currency, giving Newton the authority to implement bold ideas.

Birth of the Gold Standard

In 1717, Newton, then “Master of the Mint”, effectively laid the groundwork for the gold Standard. Whether by design or accident remains a matter of debate, but nevertheless he set the exchange rate of silver too low compared to gold. By fixing the gold-to-silver ratio at 15 to 1 in favor of gold, silver coins gradually went out of circulation, giving rise to what would later be known as the “Gold Specie Standard.” This marked the beginning of a monetary system that would transform global economies for centuries to come. It also gave rise to the gold-to-gilver-ratio which is used even to this day, to calculate the value of Silver in relation to gold.

The Driving Force behind the British Empire

The gold Standard transformed the British economy, curbing inflation and making counterfeiting, and thus money printing, nearly impossible. This move bolstered public confidence in the pound, ensuring it could always be redeemed for gold. The fixed exchange rates eventually helped to elevate the pound to the status of world reserve currency, further strengthening Britain’s economic influence. The gold-backed system turned London into the epicenter of international finance and fueled an era of industrial expansion, economic and population growth.

Gold as a Safe Haven: Bridging the British Empire’s Dominance and Revolutionary Turmoil

As Britain’s global dominance grew, underpinned by the stability of the Gold Standard, the precious metal became not only a foundation for economic strength but also a safe haven in times of war and uncertainty. This was not just a British phenomenon—across the Atlantic, the American colonies were also awakening to the power of gold. In the American Revolution key figures began to recognize its role as a financial fortress in their fight against the very pioneers of a gold-backed system: the British.

Case Studies: Gold as a Safe Haven During War and Economic Crises

War and the American Revolution (1775-1783)

The idea of gold as a safe haven during war and uncertainty became unmistakably clear during the American revolution. Where ironically Britain, that hade benefited so much from gold would see one of its colonies break apart using gold as a safe haven. Amid the turmoil of the American Revolution, where British forces clashed with American revolutionaries, visionaries like John Hancock and Alexander Hamilton recognized gold’s enduring value and strategically invested in it to safeguard their fortunes amidst the chaos of the war. Their foresight not only protected their wealth but also cemented gold’s pivotal role in times of crisis, laying the financial groundwork for the rise of the American empire.

Having witnessed the volatility of paper money firsthand, Hamilton saw gold as the only reliable store of value. The money printing that funded much of the war led to runaway inflation and the eventual collapse of the Continental Dollar. Hamilton, however, invested his modest savings in more stable assets—gold and silver—securing his wealth. His belief in a gold-backed currency laid the foundation for the stable financial system he later advocated.

John Hancock, whose fortune came from shipping, also grasped the dangers that war posed to trade and paper currency. With blockades and economic instability threatening his business, Hancock smartly diversified his wealth into gold and silver. This move protected his fortune from the inflation and devaluation that crippled others, allowing him to retain his influence and financial power throughout the Revolution and beyond.

Both Hamilton and Hancock understood that in times of war and uncertainty, gold acts as a bulwark against inflation and instability. Their strategic foresight not only preserved their personal wealth but also played a lasting role in shaping the financial bedrock of America’s future.

The Napoleonic Wars (1803-1815)

During the Napoleonic Wars, gold as a safe haven during war and economic crises proved essential for investors seeking stability as the tumult echoed across Europe. Investors like the Rothschild family, banking magnates of the time, saw opportunities in this chaos. They strategically invested in gold, accumulating vast fortunes that withstood the ravages of the wars in Europe and the French Hyperinflation following the revolution.

Nathan Rothschild, based in London, understood that gold’s intrinsic value could hedge against the devaluation of currencies. He orchestrated an efficient network to transport gold, ensuring the British government could finance its war effort, while also profiting from discounted gold purchases from struggling European governments.

The Rothschilds’ system of moving gold across borders not only helped secure their fortune but also allowed them to engage in gold speculation. By buying low during times of calm and selling high during war-driven demand, they leveraged their insights into political and military landscapes. This keen strategy culminated with the reported early news of Napoleon’s defeat at Waterloo, allowing Nathan to make calculated moves on the London Stock Exchange, further solidifying the family’s financial dominance.

By the war’s end, the Rothschilds had emerged as one of Europe’s wealthiest families, with gold at the core of their success. Their strategic use of gold, both as a safe haven and a tool for speculation, showcased the metal’s power in preserving and growing wealth during times of conflict and uncertainty.

The American Civil War’s post War period and “Black Friday” (1869)

As America tore itself apart during the American Civil war (1861 – 1865), gold once again demonstrated its resilience. James Fisk and Jay Gould became infamous for their bold, controversial attempt to corner the gold market during the “Gold Ring” of 1869, a few years after the Civil war, which culminated in what became known as “Black Friday” of September 24, 1869.

At the end of the war, the U.S. was in a period of economic recovery, and there was a lot of speculation in the markets. The country had issued large amounts of paper money (Greenbacks), which were not backed by gold. Fisk and Gould recognized the potential for profit. They began to quietly buying up large amounts of gold in early 1869, around the price of 130, anticipating that if they created a scarcity, the price of gold would skyrocket. Through their manipulation, they managed to push the price of gold to a high of $160 per ounce on September 24, 1869 (Black Friday), which was the climax of their scheme.

The plan is starting to unravel

Their plan started to unravel when President Grant realized the extent of their manipulation. On Black Friday, September 24, 1869, the U.S. Treasury, under Grant’s orders, intervened and sold $4 million worth of gold into the market. This sudden influx of gold caused prices to plummet rapidly—from $160 to $130 per ounce in a matter of minutes. Fisk and Gould were caught off-guard by the intervention, and their plan collapsed.

But while many investors were financially ruined by the sudden drop in gold prices, Fisk and Gould had managed to escape major losses. Their strategic manipulation had allowed them to accumulate a great deal of wealth before the collapse, and while they did not succeed in cornering the market as intended, they still walked away with substantial profits.

World War I (1914-1918)

The outbreak of World War I brought unprecedented economic upheaval, but for Bernard Baruch, a seasoned financier and presidential advisor, gold became a beacon of stability. As war destabilized global markets and drove European nations to print more money, Baruch recognized the inevitable inflation and currency devaluation that would follow. Anticipating the rising demand for gold as countries abandoned the gold standard to fund their military efforts, he strategically shifted his investments into gold, seeing it as the ultimate safe haven. He also diversified into gold mining stocks, capitalizing on the surge in demand for physical gold.

Baruch’s impeccable timing paid off as gold prices soared, protecting his fortune while many others suffered from the war’s inflationary pressures. His strategy of investing in both gold and gold-related assets allowed him not only to preserve but grow his wealth, demonstrating his financial acumen. Even through the post-war inflationary period, Baruch’s wise positioning in gold solidified his legacy as a trusted advisor and one of the era’s most respected financiers.

The Great Depression (1929-1939)

Amid the financial devastation of the Great Depression legendary stock trader Jesse Livermore seized its potential. Known for his uncanny ability to predict market crashes—most famously the 1929 collapse, where he shorted stocks and made millions—Livermore’s sharp instincts led him to gold as the crisis deepened.

As currencies crumbled and inflation soared, Livermore saw gold’s enduring value shine brighter than ever. He recognized that while governments raced to print money, weakening the value of paper currencies, gold stood as a reliable asset—immune to the chaos consuming the financial system. Livermore didn’t just invest in physical gold; he diversified into gold-related assets, including mining stocks and companies involved in precious metals extraction. This strategy allowed him to capitalize on both the soaring price of gold and the profitability of the industry that fueled its supply.

While stock markets tumbled and banks collapsed, Livermore’s gold investments became the stabilizing force in his portfolio. As millions of Americans saw their fortunes vanish, Livermore not only preserved his wealth but grew it by leaning into gold’s reputation as a safe haven. His actions during the Depression exemplify the strategic foresight of investors who turn to gold when traditional assets falter. Though Livermore faced personal struggles in later years, his use of gold during the Great Depression remains a masterclass in how precious metals can provide shelter and even opportunity during the darkest economic times.

World War II and Sir Henry Strakosch: gold as a Safe Haven

As the world descended into the chaos of World War II, Sir Henry Strakosch, a brilliant financier and advisor, turned to gold as a shield against the financial turbulence sweeping the globe. Strakosch’s foresight not only preserved his wealth, but it underscored gold’s timeless role as a safeguard during periods of global conflict and uncertainty.

With much of Europe devastated by war and currencies across the continent devaluing as governments frantically printed money to fund their military efforts, Strakosch recognized that gold—unaffected by inflation or the whims of national policies—would retain its intrinsic value. His deep understanding of global finance, coupled with his experience as a key figure in British banking.

Strakosch took decisive action, moving his wealth, and that of his clients, into gold. But the strategy went beyond simply acquiring gold. He diversified his holdings internationally, to ensure a safeguard from potential confiscation or devaluation by warring nations. By storing gold in neutral countries and financial havens, he guaranteed both liquidity and security, regardless of how the war might unfold.

Strakosch and Churchill

His connection to the gold industry, particularly through his role as chairman of the South African Chamber of Mines, gave him invaluable insights into the global gold supply and demand, reinforcing his strategic advantage. Strakosch wasn’t just preserving wealth—he was growing it, while others saw their fortunes erode in the storm of wartime economic instability.

By the end of World War II, Strakosch’s wealth had not only survived but thrived, thanks to his strategic investment in gold. His story serves as a powerful reminder of gold’s unparalleled ability to protect and grow wealth during times of conflict and upheaval. Strakosch’s legacy is a testament to gold’s enduring role as a financial anchor in even the darkest times, proving once again that, in the face of uncertainty, gold remains a steadfast guardian of wealth.

Interestingly, Strakosch’s influence extended beyond the financial world. He helped Winston Churchill, who was facing financial hardship in the 1930s and 40s, secure the funds needed to maintain his political career. This relationship showcased Strakosch’s ability to blend financial acumen with geopolitical insight, ensuring that his investments were not only in gold but also aligned with the shifting tides of power.

Gold’s Resilience Through Political Upheaval and Financial Turmoil

Throughout history, gold has proven itself as the ultimate refuge during periods of political and economic upheaval. The Napoleonic wars tore apart the European continent, and the continent’s instability drove gold prices to new heights. Investors didn’t just see gold as a commodity but as a beacon of security amidst the chaos. The same pattern repeated in the early 20th century, when World War I reshaped global power dynamics and currency devaluations crippled economies. gold stood strong as a reliable store of value.

Fast forward to the present, and the script feels familiar. Geopolitical tensions, from the conflict in Ukraine to rising frictions in the Middle East and the intensifying rivalry between the U.S. and China, are shaking global markets. Once again, gold is stepping into the spotlight. As new powers rise and challenge the global status quo, gold shines bright, offering a timeless defense against the storms of political and financial volatility.

A Safe Haven in Times of Crisis

Gold has long been a financial lifeline, protecting everyone from the elite to the ordinary citizen during times of crisis. Inflation erodes paper currencies, governments manipulate them, or they collapse entirely during times of war, while gold maintains its worth. Its finite supply and universal acceptance make it a reliable shield for preserving purchasing power, as seen during the hyperinflation in 1920s Germany or in more recent financial crises. Those who held even modest amounts of gold or silver were able to protect their savings and weather the storm of currency collapse and skyrocketing inflation.

During wars, governments often flood their economies with printed money to fund conflict, rapidly devaluing their currencies. Gold, however, is immune to such political maneuvering. From the Napoleonic Wars to World War I and the Great Depression, savvy investors — whether wealthy or not — turned to gold. This historical track record proves time and again that gold serves as a reliable anchor in times of crisis, protecting wealth when traditional financial systems falter. The legacy of gold as a safe haven during war and economic crises continues to resonate, guiding modern investors in uncertain times.

Final Reflections

Looking back on the legacy of Newton’s Gold Standard, we see the powerful role gold has played in stabilizing economies and safeguarding wealth. The bond between dominant nations and gold reverberates through the centuries, illustrating its resilience, both as a store of value and a medium of exchange. Today, in a world facing fresh challenges, from wars in Europe and the Middle East to power struggles among major global players, gold’s role as a stabilizer, safe haven, and wealth creator is as relevant as ever before.