Guns, Butter and Gold

Mar 23, 2022 | Rick Mills
View Original

Gold is among the safest of havens in times of war, or any other type of geopolitical instability.  After the US and the UK announced bans on Russian oil imports, on March 8 spot gold touched $2,051 per ounce, the highest since August 2020 when the metal reached its all-time peak of $2,072.50. Gold also spiked when the US bombed Libya in 1986, when Iraq invaded Kuwait in 1990, after 9/11, and when the US attacked Iraq in 2003.

The guns versus butter model portrays the relationship between a nation’s investment in defense and civilian goods. Because a country has finite resources, it must choose how much to spend on defense/ the military (guns), against the amount budgeted for items that are needed for non-defensive purposes (butter). Of course, it can also buy a combination of both.

While the United States and the rest of the North Atlantic Treaty Organization have refused to impose a no-fly zone over Ukraine, which would require them to shoot down Russian warplanes, the US hasn’t shied away from providing military aid to Ukraine.Notably, even before the war began, President Joe Biden asked Congress for a US defense budget exceeding $770 billion for fiscal 2022-23, an amount higher than the budget requests by former President Trump.