LAWRIE WILLIAMS: Not a ‘black swan’ event but gold spikes on US missile strike
I can’t really describe the US missile strike on Syria’s Shayrat military airfield as a ‘black swan’ event – nor the alleged nerve gas attack by the Syrian air force on rebel-held positions. It is hard to understand the motives for the Assad regime to use chemical weapons, given the likely international response, when government forces, with Russian backing, were already in the ascendant. However, President Trump needed to act, and act decisively given the intelligence reports he’d received – but was it coincidence that the US missile attack was initiated just as a visit by China’s President Xi was getting under way? Was this a message that the powerful US military might be deployed against that other pariah state – North Korea – which has a limited degree of Chinese backing, or even against China’s effective annexation of disputed areas of the South China Sea? Is this a warning about further US gunboat diplomacy?
But ‘black swan’ event, or no, the immediate reaction on news of the missile strike was to drive the gold price up around $15 an ounce, breaching the 200-day Moving Average. Given the US attack will raise tensions with Russia that was actually a pretty muted response, but then the US strike was also seen by the media as a limited reaction – more of a warning shot across the bows to the Assad regime that chemical weapons usage would not be tolerated, even against al Qaeda and ISIS aligned positions. Whether gold will be allowed to stay in plus $1,260 territory where it resides as I write, remains to be seen.
But what the movement in the gold price does show, limited though it may have been, is that it doesn’t take much of a shock to stimulate safe haven demand. Syria is, in itself, geopolitically a largely discounted war theatre, but the initial responses show that even such a limited controlled missile strike in a relatively small Middle Eastern nation has international repercussions involving the superpowers. Russia may no longer be the force it was thirty years ago but under President Putin it has been re-asserting itself on the world stage. President Trump has made it clear that he respects what President Putin has done to rebuild Russia’s self confidence and re-position itself on the world stage – ‘making Russia great again’ perhaps. All the more reason for him to be seen to act quickly and decisively in deploying the US military to try and prove he is made of the ‘same stuff’. Putin’s strong-man image has done wonders for his Russian domestic approval ratings. Trump would just love to see his own ratings rise from their dismal start to his Presidency - latest polls pre-the missile strike suggested an approval rating of only 34%.
So where will President Trump’s ‘make America great again’ mantra take him? He has plans to pour more and more money into the US military machine and if confrontation with Russia, and potentially also with China, escalates, we could see a return to the arms race. This has the potential to further substantially expand what many see as the US’s already untenable debt situation. And Russia can ill afford a new arms race either.
Apocryphal Chinese curse: ‘May you live in interesting times’. ‘Interesting times’ in this context can be seen as hugely positive for gold. Seldom has the global geopolitical and geo-economic situation been more uncertain. If gold holds on to its break through the 200-day Moving Average then it could well move substantially higher. $1400 or higher by the year-end anyone?