Gold Prices Moving Higher on Geopolitical Factors
$GLD, $USD, $EUR, $GBP
The economy is very much influenced by the events going on around the world.
The Brexit vote, for example, caused both GBP and the EUR to weaken considerably, and USD to grow stronger by comparison.
The announcement of a federal interest rate hike is often met with a decline in the stock market, though we have not seen that this year.
Everywhere we look, current events have an impact on economic factors around the globe.
So with that in mind, what are the geopolitical factors that are contributing to the current rise in Gold prices?
One of the most significant events in the news recently has been Donald Trump’s missile strike against Syria. When Syrian President Bashar al-Assad allegedly bombed his own people with dangerous and illegal chemical weapons, President Trump retaliated by launching 59 Tomahawk cruise missiles against the airfield from which the attack originated.
Not long afterwards, Vice President Pence stated publicly that the previous administration’s policy of “strategic patience” towards Syria, North Korea, and other countries that could pose a threat to our nation, was now over.
In particular, he warned that North Korea should not test President Trump’s resolve by continuing their illegal testing of missiles and nuclear weapons.
Needless to say, tensions between the US and both Syria and North Korea, as well as their respective allies, Russia and China, have been running high for a few weeks.
However, over that same amount of time, the Gold spot price has risen significantly, rising from 1,252.48 the day before the attacks, to 1,266.62 immediately after the news broke, and continuing to rise.
Tuesday, Gold finished -0.98% to 1,265 oz.
There are several reasons for this sudden spike.
As previously mentioned, one of North Korea’s allies is China, with whom the US does significant business. What they plan to do in this situation remains to be seen, but now, there is fear that their actions will have a negative impact on the markets.
As a result, people are looking for a safe-haven to protect themselves in case of market downturn.
And Gold has always been one of the best, most secure safe havens there is, as it retains its value over time. Therefore, if you have a portion of your money in Gold, even if you lose your investment in the stock market, you still have something to fall back on, and protect your nest egg.
Our relations with Syria and North Korea are not the only geopolitical factor in play in the economy now, and the markets are not the only thing being affected.
For example, President Trump recently remarked that the USD is too strong, which makes it difficult to compete financially with other countries who are devaluing their currency.
In response to his remarks, the UDS’s value dropped immediately, hitting a 5 month low Vs JPY. This drop further cemented investors’ need for a safe-haven, thus driving Gold up..
There is then the practical reason for Gold’s recent surge.
Demand for Gold has been increasing in both India and China, 2 of the biggest Gold importers in the world. Unlike the other factors noted above, which were immediate reactions to specific events, this has been going on steadily for several months.
Demonetization in India late last year had led to a decrease in imports, but the effects seem to be waning, the Rupee’s value is going up, and the demand for Gold is back on the rise.
Dollar-Rupee Tuesday at 64.44 is oscillating in the range of 64.20-70. Immediate minor support comes at 64.40 from where it may bounce back to 64.60 once again but the broader oscillation in the range of 64.20-70 is expected to continue.
Meanwhile, China’s demand for Gold is increasing so much that some say it cannot be met. When demand exceeds supply, that serves to drive the price up.
All of these are significant factors contributing to the rise of Gold in recent weeks.
Furthermore, they seem to indicate the continued rise of Gold in the foreseeable future. Tensions with Syria and North Korea are likely to remain high as a result of President Trump’s current policies.
Plus the demand for Gold is likely to continue rising in India and China, particularly as India’s wedding season arrives later this year, Gold is the traditional gift.
In this geopolitical climate, it is important to have a safe-haven.
The Big Q: Is your nest egg protected?
|HeffX-LTN Analysis for GLD:||Overall||Short||Intermediate||Long|
|Neutral (0.19)||Bullish (0.33)||Neutral (0.19)||Neutral (0.06)|
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