LAWRIE WILLIAMS: Gold’s hugely eventful week

Maybe the dust has settled on the assassination by the U.S. of Iran’s second most important leader, General Qasem Soleimani, and Iran’s immediate response of missile attacks on two airbases in Iraq used by the U.S. military, or maybe it hasn’t.  What is apparent is that Middle Eastern tensions have risen and, one suspects, U.S. citizens are now far less safe almost anywhere in the world.  The assassination of General Soleimani, and the Iraqi Shiite militia leaders accompanying him, has almost certainly given a boost to the remnants of IS, probably giving them a chance to regroup and resurrect their insurgency, thus generating even more danger for U.S. troops and their allies.  That is the law of unintended consequences which seem to this writer to have resulted from President Trump’s shoot-from-the-hip impulses, no doubt egged on by some senior military personnel in the Pentagon who may be looking for an all-out war with Iran, given the U.S.’s undoubted technical military advantages over any prospective Middle Eastern opponents.

But even if the war-favouring U.S. generals get their way, any such conflict would be hugely costly in terms of lives lost and enormously costly to the U.S. in dollar terms in attempts to dominate an almost totally hostile Iranian populace assuming a likely inevitable U.S. military victory.  Afghanistan and Iraq, where at least a significant part of the population is, or was, U.S. supportive should provide a great example of what would be faced by the U.S. in an occupational role.  There are indications that President Trump, despite his aggressive rhetoric, is well aware of this and is reluctant to commit his military to an all-out conflict, but the Soleimani assassination may well prove to have been a serious misjudgement of the consequences of such an act.

The tragic downing of the Ukrainian airliner – now admitted by the Iranians as a mistaken missile launch of its own anti-aircraft/missile defences – is yet another worrying development and another huge example of unintended consequences of the Iran–U.S. stand-off.  Whether the realisation of the disastrous error will cause Iran to rein in its military responses is uncertain, but there’s probably little doubt that Iraqi Shiite militias will seek revenge, completely outside Iranian control, for the killing of some of their leaders in the U.S. strike on Soleimani.

Gold, of course, reacted strongly by spiking almost $100 or so in the immediate aftermath of the U.S. strike and in anticipation of an Iranian response.  But when the ‘retaliation’ proved to be far more measured and circumspect than anticipated, tensions reduced leading to gold and silver prices coming back sharply as safe haven concerns reduced.  But while the gold price initially dropped back below $1,550, it then picked up a little towards the end of the week closing above $1,560, perhaps on disappointing U.S. job creation figures.

There can be little doubt that the underlying gold price trend is currently almost totally dependent on U.S. economic data for now, even though the principal demand centres for precious metals are elsewhere in the world.  These provide some fundamental support for precious metals price progress with central bank buying and gold ETF demand remaining strong – at least for the present.  However extraneous geopolitical factors will continue to generate up and down spikes as we’ve seen in the past week.  Thus while the U.S./Iran standoff may have diminished temporarily it will only take a hot-headed attack on U.S. assets by some anti-American faction somewhere in the world to bring anti-Iranian rhetoric, and perhaps action, to the fore again whether or not Iran has any control at all over whatever group it is making the attack.  There are also other geopolitical flashpoints out there – nearly all involving America in some form or another, and with a U.S.  Commander in Chief prone to aggressive rhetoric on twitter we can expect these to have an impact too, as and when they may occur.  So geopolitical risk factors will remain and may cause the gold price to stair step up again.  Gold will thus remain volatile with an upwards underlying trend!

12 Jan 2020

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).

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