We really hate to do it, but we will publish an article about “war.” As we have laid out recently, research of 20 different economic and financial cycles (courtesy of GE Christenson) has shown that the world will experience a seismic shift in markets, metals and money starting in 2013. Things could have appeared “contained” in the last two years (as central planners tend to express themselves), but it is likely to change starting this year. The gold and silver price crash earlier this year was the first shot across the board.
Unfortunately, recent events point to an escalation of the situation in Syria. As reported by Zerohedge over the weekend, the US is in the final stages of preparing its attack against Syria: “Moments ago the inevitable denouement arrived when as CBS’ David Martin reports, the US is preparing for a cruise missile launch against Syria, and is further ordering warships closer to Syria to be prepared and ready for when the trigger is pulled.” Read the full article from CBS on Zerohedge’s website. Although this is breaking news for regular citizens and investors, our assumption is it should have been “behind the scenes” (read: to elite citizens).
Let it be clear that our interest is in gold, not in wars. The gold price has acted exceptionally strong in the past two weeks. The first chart represents the price of gold in July and August of this year; it does not include Friday’s strong jump to $1,400 which would have made the action on the chart even stronger.
Obviously, we are in the strongest seasonal period for gold and silver. Exactly a year ago, we have been writing about the break out of the metals, at that time bouncing off the major support area at $1,550 gold and $27 silver. But apart from seasonality and a technical bounce from oversold levels, we suspect the current price action involves also safe haven buying. There is a fair chance that markets are pricing in the US attack against Syria. Is this a prediction? Not at all. We do not pretend to have the unique abilities to predict the future. Our thoughts are based on an increasing likelihood and suspicion. Furthermore, there are so many variables in a market making it impossible to point one reason for a price move.
What adds to our suspicion is that the rise of the gold and silver miners have stalled. It’s too early to consider this is a final confirmation though.
Suppose Mr. Obama, who won the Nobel Peace Price in 2009, gives green light to the US troops and launches a missile attack, what is likely to happen with gold in such a scenario? In order to get an idea, we went back in time and found evidence of gold’s reaction in the 1990 Kuwait invasion. The attack took place on August 2nd 1990. The next chart (monthly closing prices) shows how gold has been rising in the weeks leading to the attack. Although July has always been a quiet month for gold, gold’s rise was probably due to the increasing likelihood of war. The World Gold Council writes: “Iraq’s invasion of Kuwait generates a bout of safe-haven buying that generates a rally towards $415. The rally proves short lived and the gold price ends the year $7 lower than the opening level, at $391.” Gold peaking at $415 on a daily closing basis represents a 20% rise in a matter of 2 months. Remember that the 90′s were a major bear market for gold, so gold’s rise at that time was enormous.
In another instance, the September 11th attacks in 2001, rose significantly in the days following the attacks. The World Gold Council writes: “The price of gold – alongside that of other safe-haven assets – rallies after the 9/11 terrorist attacks, rising from just over $270 towards $290, but the gains are soon dispelled.” In this case, obviously, the gold price only started to react as of the day of the attacks.
Again, this article is not meant to predict or provoke anything. The aim is to link the price of gold with an increasingly likely attack from the US against Syria. Also, it provides some clues on how gold has reacted in previous instances in the past. For one thing, if the above would appear to be correct, it tells something about the internal strength of the recent precious metals price rise. We will closely monitor this and report back when appropriate, as usual.