As Ron Burgundy would say, ‘that escalated quickly’.
‘That’ being 2020.
I’d be happy to say that Ricky Gervais (of The Office fame) has won the year already. Did you see his performance at the Golden Globes yesterday? Dropping absolute truth bombs everywhere.
Piers Morgan’s reaction was spot on:
‘Ricky Gervais delivered a glorious kick in the globes to Hollywood’s woke virtue-signalling hypocrites — and exposed them as a bunch of shameless two-faced charlatans.’
Despite Gervais telling them to accept their award and ‘f*ck off’ without making political speeches, a number of them couldn’t help it.
A few made the link between Australia’s devastating bushfires and climate change. However, none pointed out that nearly 200 people have been arrested for arson around the country. But they wouldn’t, would they?
Meanwhile, the Middle East is alight — again — too.
In case you missed it, on Friday the US took out top Iranian general Qassem Soleimani. It was ostensibly in response to an attack on the US consulate in Iraq.
What to make of it?
Well, as the saying goes, the first casualty of war is the truth, so no one really knows what’s going on here.
And our interest lies in what the impact on financial markets might be.
Gold is concerned…
On that front, gold is an important indicator. In times of geopolitical turmoil, gold catches a bid. Thanks to the Fed pumping in billions of dollars daily in the ‘repo’ market, gold had already gone on a healthy run.
But when news broke of the Soleimani killing, the gold price surged. You can see this in the chart below. At time of writing, the price was at US$1,565, just above an important long-term resistance/support level.
The gold market is clearly concerned about an escalation of tensions. Is this an accurate reflection of the real state of things, though? Is the threat of war real?
As I said, no one really knows the situation or how things will unfold. Investing is always about assessing probabilities and placing bets on uncertain outcomes.
So let’s assess the probabilities of war/no war and relate that to the near-term outlook for gold.
What’s next for gold?
I’ll give you my conclusion first:
Gold has over-reacted and will likely retreat in the weeks to come. That’s where I think the weight of probability lies.
For starters, positioning in the ‘managed money’ category of the futures market is near record highs. That’s a worry. The bullish gold trade is already very crowded.
In addition to that, gold is not necessarily an accurate indicator of geopolitical outcomes. It simply reacts to the situation and hedges against possible risk. If that risk doesn’t eventuate, gold will fall just as sharply as it rose.
A similar thing happened in August/September 2017. Gold rallied strongly on concerns of war between the US and North Korea. It rallied to a high of nearly US$1,360 an ounce, before falling to a low of US$1,241 a few months later.
In my view, buying gold as a hedge against war when everyone else is doing it is a low probability move.
I think this is especially so in an age of disinformation. Don’t forget, the real war is between the Trump administration and the ‘Deep State’ (the Washington ‘swamp’). The Deep State’s media propaganda arm — The New York Times, the Washington Post and MSNBC, to name a few — will tell you that Trump is a warmonger.
They hyped the situation on the Korean peninsula and it turned about to be false. That’s why I think the emerging mainstream narrative of war with Iran being likely is false, too.
Trump’s policy is aggression in order to avert war. He may be a lot of things, but he’s not a warmonger. Remember, he sacked warmonger-in-chief John Bolton just a few months ago.
And in news out just this morning, it appears as though the US will comply with Iraqi requests to leave. A letter from the head of the US Marine Corps, William H Seely III, to the Iraqi’s, states:
‘Sir, in due deference to the sovereignty of the Republic of Iraq, and as requested by the Iraqi Parliament and the Prime Minister, CJTF-OIR will be repositioning forces over the course of the coming days and weeks to prepare for onward movement.’
‘In order to conduct this task, Coalition Forces are required to take certain measures to ensure that the movement out of Iraq is conducted in a safe and efficient manner.’
Whether this is true remains to be seen. There are also other reports of the US troop presence in Iraq increasing.
The upshot of all this means there will be a huge amount of leaks and disinformation in the coming weeks.
When in doubt, follow the money. And on that note, I would point out that despite gold’s near US$35 an ounce rally since the death of Soleimani, the major US gold stock indices have DECLINED.
That tells you about all you need to know. That is, this rally is unlikely to be sustained. Look for a decent pullback in the weeks ahead.
PS: Greg Canavan recently caught up with US gold expert Jim Rickards to talk about the truth behind the recent rise of the gold price in Australia. Click here to watch.