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LAWRIE WILLIAMS: Gold's Groundhog Days - do not pass $1,300!

Precious metals newsletter writer, Ed Steer, described the activity in the gold market on Thursday in the week past as ‘Groundhog Day’ a reference for those who do not know it to a comedy film where the main protagonist is doomed to repeat the same day over and over again.  All based in Punxsutawney, Pennsylvania where the actions of a groundhog brought out of hibernation on February 2nd (a genuine annual event) are said to predict the end of winter (or otherwise).  The expression has come to represent repeated activity and has to rank alongside former baseball catcher, manager and coach, Yogi Berra’s ‘its déjà vu all over again’, effectively covering similar territory, as one of the most quoted sayings on repetitive activity.

Ed Steer’s Groundhog Day quote could equally well have been applied to the activity of the gold price virtually every day in the past week or so where it has followed an almost identical daily pattern, always ending short of $1,300.  But it's getting ever closer!

This all could be taken as  suggesting there does indeed seem to be a concerted effort to prevent the gold price from moving back above US$1,300 with the movement in the U.S. dollar up or down – which usually has an almost instantaneous effect on the price of the yellow metal -  almost irrelevant.. 

We don’t think this can last.  There are too many contentious geopolitical issues imminent, any one of which could trigger a substantial gold price rally – See: Gold in the Doldrums, but precarious geopolitical issues could counter.  The acrimonious G7 meeting in Quebec City, ongoing as I write, to be closely followed by the meeting in Singapore between Presidents Trump and Kim Jong Un are just the first two of such.  We suspect the Singapore summit is likely to end in stalemate without a denuclearisation deal as there are potentially unacceptable conditions being demanded from both sides, and thus has the potential to end in more acrimonious exchanges of rhetoric yet again given the propensity of both parties to ‘shoot from the hip’.  If this happens, we still can’t see the U.S. nuking North Korea, nor the latter attacking U.S. Territories or its allies.  The potential fallout is too extreme.  Nor do we think the U.S., for all its military might, would contemplate a ground war.  The North Korean army is too strong and the potential for unacceptable losses on the American side is too high.  So yet another contentious impasse will likely result but with a return to the escalation in tensions which could be the trigger to set the gold price alight.

But even if Presidents Trump and Kim Jong Un do reach some kind of verbal agreement there are plenty of other imminent flashpoints out there.  So far, for example, Russia which may well have a military armoury to match, or even exceed, that of the U.S. has remained aloof from what might be seen as military provocation by the U.S. and its allies.  To perhaps calm things down a little may have prompted President Trump’s call, for Russia to be re-admitted to the global summit meetings – returning the G7 to a G8, although this was rejected by the other G7 members, but could yet be seen as a preliminary move to try and ease tensions..

However we doubt whether Russia will remain on the sidelines for long.  It is making overtures to Iran  – another potential flashpoint for the U.S. and its ally Israel.  Meanwhile the ongoing China/Russia seemingly anti U.S. dollar financial co-operation is yet another example of a divided world and an economic power struggle at the top in which the U.S. may well be the long term loser.  The rest of the world resents being dictated to by the U.S.!

All this bodes well for the price of gold (and also of silver) in the long term as geopolitical tensions are unlikely to go away, and could escalate – particularly in the Middle and Far East and Eastern Europe.  In the former areas it could pit the U.S. against Russia and/or China while in the latter NATO against Russia.  Hopefully none of these will result in military confrontations but the mere possibility of a flare up will help drive precious metals upwards. 

Meanwhile overall fundamentals for precious metals have to be positive.  New mined gold production looks to have plateaued and may be turning downwards – it certainly will in the years ahead.  Wealth in the geographical areas which have a propensity to buy gold is seen as growing – particularly in the high population nations of Asia. 

We may well yet have to wait a few years for the gold price to reach $5,000 or $10,000 as some of gold’s  more bullish  supporters have been predicting, but the price should at least be heading in that direction.  For it to get there sooner rather than later probably requires a global economic scenario we wouldn't want to contemplate.  But to preserve wealth, particularly in those nations currently experiencing, or likely to experience, hyperinflation it would be as well to hold some gold, or silver, in your investment holdings.  In a major banking breakdown, which certainly isn’t out of the question, an investment in precious metals could be a very smart move indeed.

09 Jun 2018

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

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