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LAWRIE WILLIAMS: Tensions boost gold price – will it move up or down?

Geopolitical tensions and uncertainties are flaring up around the world and the gold price has been benefiting accordingly, but is still well below levels reached in the middle of last year so could have further to go yet.  There do seem to be repeated efforts to drive the price down, but so far these have only lasted for a few days before gold has bounced back up again and the latest upwards movement was capped just short of $1,280 before settling back into the low $1,270s in European trading today.

The boost was provided by a combination of the U.S. missile strike on the Syrian Shayrat air base, which may have been symbolic, rather than strategic given that Syria’s ally, Russia, was apparently pre-warned and presumably passed this warning on to Syria.  Some reports say that the airbase was devastated – others that the runways remain operable and that the only aircraft destroyed were those that could not be moved.  The low death toll given the number of missiles supposedly used (59) seems to confirm the latter suggestion.  There are also reports that only about half the missiles actually struck the target, but if true whether this was through operational problems or anti-missile defences is as yet uncertain.

The missile attack was ‘a shot across the bows’ warning that the alleged chemical weapon attack by the Syrian Air Force on the rebel held town of Khan Sheikhoun should not be repeated.  But this is among allegations and counter allegations of complicity in the event and in the murky propaganda war which is going on in Syria one doubts the truth will ever materialise.  It does remain hard to understand what President Assad would have had to gain in launching a chemical weapons attack given the likely political fall-out, but in a civil war strange tactical decisio0ns can be, and are, made from time to time.

A second boost to the gold price was the perception that President Trump, given the apparent Western approval of the Syrian air base attack, might be looking to a similar pre-emptive strike aimed at North Korea’s nuclear weapons programme.  While the U.S. itself might be outside the range capabilities of Pyongyang’s ballistic missiles, a number of U.S. allies, bases and the U.S. fleet could all be within range.  While North Korea could probably be annihilated in a nuclear conflict with the U.S., the unpredictability of its leadership brings a different element into the equation, and any strike on North Korea would bring the U.S. into diplomatic conflict, at the least, with China, much as the Syrian attack has done with Russia – but perhaps more so.

Add to these there continues to be a simmering civil war in Eastern Ukraine, which has dropped out of the headlines, but perhaps more worrying for the international community is the rise of hard left French presidential candidate Jean-Luc Melenchon.  Melenchon is a charismatic speaker and the fear is that he could possibly end in a runoff with Marine Le Pen as the top two candidates in the preliminary electoral round giving France only the choice between a hard right and a hard left President.  With the centre and soft right vote split between Emmanuel Macron and Francois Fillon this is becoming a real possibility.  The latest poll as reported by Bloomberg shows Melenchon in third place with 18 percent, a point ahead of one-time front-runner Francois Fillon. The poll showed nationalist Marine Le Pen and centrist Emmanuel Macron tied at 24 percent ahead of the first round.

But the rise of international geopolitical worries has not been the only factor driving the gold price upwards.  Some pretty dismal U.S. domestic job creation statistics for March, which fell well below informed estimates, have also impacted positively on the price of the yellow metal, largely sidelining the U.S. Federal Reserve’s continuing programme of small interest rate rises.

Failing some news to counter the above, gold looks set to consolidate at current levels and perhaps move higher still in the weeks and months ahead.  A $1,275 gold price puts $1,300 firmly in the gold bulls’ sights and it’s early in the year yet.  Some analysts are now predicting $1,400 gold or higher by the year end with a certain degree of confidence that this could well come about.  But with gold there tend to be lots of forces at play.  There are still, those predicting a crash back below $1,200 but for the moment the bulls remain in the ascendancy.

12 Apr 2017

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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