LAWRIE WILLIAMS: Gold at $1,350 and silver at $15 – what now?

It only took a rise in tensions in the Middle East again to take gold and silver prices to the next level in morning trading in Europe but again, as usual, when American markets opened the earlier gains were reversed with gold at one time breaching $1,340 on the downside.  Itcertainly wasn't allowed to end the week at the higher levels!  But there were signs that the reversal, put down to opportunistic profit taking, might be shortlived.  We shall see what transpires next week.

The trigger for the big rise in this instance was the sabotage, or deliberate mining, of two ocean going supertankers bound from the Persian Gulf to ports in the Far East.  The U.S. Administration has accused Iran of being behind the damage to the supertankers but has offered little more in the way of proof of Iran’s supposed involvement apart from video footage of an apparent operation by Iranian special forces to remove an unexploded limpet mine from one of the tankers.  That this could equally have been a safety-inspired move by the Iranians to prevent more damage to a tanker close to its waters, which could lead to serious potential environmental problems for any of the countries with Gulf coastlines, including Iran, does not seem to have been a consideration.

It is difficult to envisage what Iran would likely gain from damaging the tankers apart from perhaps a demonstration that it could control the narrow Hormuz Strait and block tanker access from the Gulf  oilfields.  But the timing of such a potential move would seem extremely inappropriate given serious tensions with an anti-Iranian U.S. Administration and a diplomatic visit to Iran from Japan – where one of the damaged tankers is owned and crewed - which was under way at the time.  This has given rise to theories that this could be a ‘false flag’ incident to perhaps try to ‘justify’ U.S. military intervention which has been threatened by President Trump and some of his senior advisers. If such an armed confrontation should develop, precious metals would undoubtedly receive a major price boost, but we suspect clearer heads will prevail and keep such a drastic measure at bay – at least for now.  An attack on Iran might well draw in China and Russia in support of the Gulf nation – a potential confrontation which could have enormous global consequences.

We have noted here before that the gold price could be poised to take off should any of a number of potential flashpoints trigger conflict escalation and a U.S./Iran flare-up is but one of several of these global trigger points, and perhaps currently the most dangerous one.  One suspects the American military machine may view Iran as a pushover having driven Saddam Hussein’s neighbouring Iraq to a rapid defeat in the relatively recent Gulf War, but a confrontation with Iran may be a different proposition altogether and not engender the support of the U.S.’s traditional allies, as well as create problems, as noted above, with the world’s two other major superpowers.

Silver too shot up back above $15, but as is its wont it fell back equally sharply with the gold:silver ratio back to 90 plus pretty rapidly as the gold price slipped back.  However what might be an encouragement for the silver followers was the metal’s sharp move to the upside when gold reacted so positively.  Silver remains a much more speculative investment than gold but it retains the historic precedent of outsprinting gold should the latter rise smartly.

A number of observers see a positive remainder of the year for gold with year-end forecasts of $1,400 plus for the yellow metal.  Some, with good track records on precious metal price predictions are even looking for much higher levels in the second half of the year.  If they are right then silver could be a great gamble.  However, be warned.  A positive future for the gold price has been predicted on a number of occasions only for it to slip back again and disappoint and if this happens again we could yet see an even higher gold:silver ratio with the latter being even more in the doldrums.  Nothing is certain in this world except death and taxes - an adage reputed to have been made by Benjamin Franklin - and there is certainly no certainty that precious metals prices are poised for take-off, although we would like to believe that the current odds do favour such a scenario.

14 Jun 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com