It’s been a tumultuous start to this new year and decade. Clearly, there’s a rage in the air.
A drone strike that took out Qassem Soleimani, the leader of the Quds Force of the Iranian Revolutionary Guard, sent shock waves across the planet.
This drone hit, in retaliation for the killing of an American contractor at a U.S. base near the city of Kirkuk Iraq, also took out Abu Mahdi al-Muhandis, a local Iraqi suspected of plotting recent rocket attacks.
The escalation began with the following Twitter exchange between Trump and Soleimani’s boss, Iran’s supreme leader, Ali Khamenei.
Within minutes of the hit on Soleimani, gold, asserting itself as a hedge against all forms of geopolitical uncertainty, went on a tear (the following is an intraday chart – each bar represents 5 minutes of trade).
Will the Iranian’s take this assassination lying down? I doubt it.
Soleimani was a big man in the Iranian regime, hailed as a heroic national figure.
The threat of further escalation is very real.
Ayatollah Ali Khamenei has vowed “severe retaliation”.
Where does Trump stand in all of this? A Global News poll answered that query:
Canada’s Global News recently ran a poll before the new year asking who the ‘person of the decade’ was. Overwhelmingly, Donald Trump was the answer, raking in almost 72% of the 47,605 votes.
You can’t make this shit up.
As the enormity of this deadly attack sunk in overnight, gold thrashed about wildly overseas, finally tacking on another $13.00 as it closed out the session in New York on Friday afternoon, Jan. 3 (the chart below is also intraday, reflecting roughly 18 hours of trade).
It would appear no one wanted to leave their trading desk without propping up their portfolio with a little insurance before moseying off into the weekend.
Being a self-professed gold bull, this is NOT the way I wanted to see gold take on higher ground.
The metal already has a number of compelling fundamentals underpinning its recent strength. We don’t need this geopolitical crap.
Aside from plummeting bond yields, negative interest rates (more on this further down), and debt levels that are difficult to comprehend (World Debt Clocks), central banks around the globe are currently consuming 1/5th of the global gold supply, having added 156 tons of the precious metal to their reserves in Q3 of 2019.
We haven’t seen this kind of demand since the Nixon era!
Equity markets—trading at an all-time historic high—could also prove extremely gold friendly when the inevitable correction arrives. That time could be nigh…
We haven’t seen this kind of extreme optimism in 15 years. That’s the herd at work. And the herd is nearly always wrong.
Negative interest rates: in recent years, it was argued that gold has no utility—it yields no interest and should, therefore, be dismissed as an investment option in one’s portfolio.
Warren Buffet on the subject:
“[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
Well crafted Mr. Buffet.
That might have rung true a few decades back, but times have changed.
According to Commerzbank—Germany’s second-largest bank—bonds worth $17 trillion (at their peak) were yielding below 0%.
A Commerzbank analyst in a recent Kitco article:
“The fact that gold does not yield any interest, which used to be a disadvantage, is no longer applicable in an environment of zero or negative interest rates. Instead, these days one could say that gold does not ‘cost’ any interest.”
As we keep repeating here at Guru Central, it’s difficult to imagine a scenario where gold won’t rip higher in 2020.
But I’d rather see a stair-stepping ascent in the metal—a balanced chart pattern consisting of higher highs and higher lows—rather than sharp price spikes spurred by Middle East tension.
These conflict-driven spikes are rarely sustainable.
Iranian President Hassan Rouhani via a CNN update:
‘If we remain silent against the US, it will become bolder and more aggressive’
CNN Breaking News moments ago:
Way to tip your hand there Trump.
Here’s another look at gold—a six-month chart:
It doesn’t require a keen technical eye to see that gold is about to meet some fairly stiff resistance (blue horizontal line)—a zone that should, under normal circumstances, force gold to consolidate its recent gains before pushing higher.
But if things continue to escalate between the U.S. and Iran, Friday’s $1555.00 gold close—and this $1560 resistance zone—will look pretty damn cheap when the metal opens Sunday night overseas.