Gold is near the highs of the day, up $80 to $5214 as investors pile back in.
Last week, we saw gold sold on the war as huge uncertainty hit everything. I believe that led to a de-leveraging trade even as China added to its gold reserves for a 16th month.
As I wrote early Monday:
“When people are worried about the future, they buy gold. When people are worried about the present, they sell gold.”
I highlighted that it followed the covid scare, where gold fell at the peak but then embarked on a record run. I think this is similar as the unbridled use of American military power re-emphasizes that the post-WWII world order is broken and not returning. We’re likely to get more of that with Cuba too, as Senator Lindsay Graham said on the weekend.
The bottom line is that it’s just not safe to own US dollars if you’re an adversary, and the big one is China. Trump will head to Beijing later this month but the deliverables on that event are rumored to be near-nil. There is also the ever-looming issue of China-Taiwan and how the US would respond to any action from Beijing across the Taiwan Strait.
Moreover, the inflationary effects of the oil price spike are hard to define right now. Crude is still trading at $86, which is a problematic rise from the low-60s near the turn of the year. That could further fracture the Fed and politicize it, while adding to the political turmoil in the US.
After the mid-terms, the US picture will be even more cloudy as we will have a President and (likely) House that are extremely combative and willing to take measures in terms of vetos and shutdowns that haven’t been previously seen.
If we’re past the peak of the Iran war (and that’s a big IF), then I would say gold has passed yet-another test as it held $5000 though the selling and continues to consolidate near the top of the range. I don’t see a great reason to break higher at the moment the positives are outweighing the negatives.
This article was written by Adam Button at investinglive.com.
