LAWRIE WILLIAMS: Gold in the Doldrums, but precarious geopolitical issues could counter
Not even President Trump’s tariff impositions, nor the political crisis in Italy, seem to be able to snap gold and the other precious metals out of a losing streak. Gold investors may take heart in that May and June are typically weak months for the gold price (the Summer Doldrums), but perhaps they should also be nervous that the gold bears may be gaining the upper hand. But never fear – there are plenty of geopolitical possibilities on the horizon, any one of which could reverse the recent trend – or so a number of well-respected gold commentators are telling us.
Both Martin Murenbeeld (best described as a cautious gold bull) and Frank Holmes (perhaps not so cautious) are warning that the Trump trade tariffs on steel and aluminium from erstwhile U.S. allies, Canada, the EU and Mexico- with the likelihood of even more stringent impositions on Chinese imports – may be opening a hornet’s nest of retaliatory tit-for-tat trading restrictions, which could well spread. The net result of such a global trade war should be gold positive and we could well see gold price fireworks in the second half of the year (See: Trump opens Pandora’s box. Global trade war very positive for gold. and GO GOLD! Inflationary Tariffs Could Supercharge the Yellow Metal))
But there are also some other significant geopolitical minefields ahead which could blow up sharply and test ‘The Great Negotiator’ to the hilt and we’ll see if Trump’s business tactics transfer to the geopolitical arena or not. The meeting between President Trump and North Korea’s Kim Jong Un set for Singapore in a week’s time could be one such. Trump is demanding immediate denuclearisation, but we doubt that Kim will readily accede without a complete U.S. Troop withdrawal from South Korea, and we doubt Trump would agree to that.
If the talks break down without any kind of agreement – and there’s still a chance that they might not take place at all - we will likely see a return to the highly antagonistic rhetoric from both parties. With John Bolton, Trump’s security adviser, calling for a Libyan model solution (which can hardly be called a success for any party), the outcome of any talks, if they take place, could be disastrous in terms of bringing the two sides closer together. We don’t think President Trump has any understanding of the North Korean psyche and the propensity for the talks to end acrimoniously is strong.
But North Korea is not the only cloud on the geopolitical horizon. Think Iran, Syria, the prospects of a blow-up with China over the latter’s South China Sea moves, Ukraine and increasing tensions with Russia as just a few of the prospective issues which could rear up before 2018 is out. Any, or all, of these look as though they could be imminent and the Trump aggressive stand on U.S. policy towards them could be counter-productive in terms of geopolitical diplomacy. He, and his main advisers, seem to think America’s military power is more than sufficient to bring those who oppose his views into line. History tells us this may not be so – at least not without unacceptable setbacks on the way.
So the current gold price doldrums could well be shortlived. Whether gold has been weak because of a stronger dollar, a seeming easing of immediate geopolitical tensions, U.S. Fed interest rate moves, seeming strength in the U.S. economy, or due to continuing moves to suppress the price by the powers that be as some would have it, the bears are currently taking advantage, but this could turn around quickly should any of the stronger potential geopolitical issues blow up in our face.
05 Jun 2018
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