The End Is Near Gold continues to soar on fears of a potentially nuclear confrontation with North Korea.
The good news: The decades-long conflict with North Korea seems certain to end soon.
The bad news: It may end at very great cost. Dear John, Last week I told you not to worry about the price decline that gold had just experienced. Gold was in a bull market, I said. It would soon find some excuse to begin rallying again.
Well, it did. And it’s a doozy. If the threat of nuclear war isn’t enough to drive people to buy gold, what else do you want?
Now, I don’t want to make light of this latest dust-up with North Korea. It’s very serious business. That said, I never advise people to buy gold on these kinds of geopolitical events, unless they don’t currently own any gold or silver at all.
The fact is, these kinds of geopolitical flash-points end up being flashes-in-the-pan. They go away as quickly as they emerge, with gold then immediately falling from its crisis highs...leaving investors holding the bag.
While I still don’t recommend investing in gold based on the latest rattling of sabers with North Korea, I want to stress one very important point: This Time Is Different Lots of people around the world are disregarding my advice and buying gold right now. They’re scared stiff, and they’re running to the safe havens of gold and silver.
In reaction, gold leaped about $16 higher yesterday. It’s up another $8 or so today, at around $1,285, and seems likely to knock on the door of $1,300 soon if tensions remain high.
Importantly, silver is validating the move by finally clearing $17.00 with ease. Plus, the gold stocks are running higher, despite serious weakness in the broader equity markets today.
It seems like a major new rally is underway in the metals and mining shares, even if it’s built upon the shaky foundation of a short-term political crisis.
But this face-off with North Korea is different than any other. Put aside, if you can, the fact that Donald Trump is president, and whether that means steely determination and negotiating skills or naiveté and inexperience.
The real issue today is that, unlike previous provocations by North Korea, the path to accommodation is at a dead end. There is no road left to kick the can down.
The Hermit Regime is within months, if not weeks, of being able to deliver a nuclear-armed ICBM to the American heartland. As White House advisors have admitted, living under the shadow of such a threat is intolerable.
Being so close to joining the nuclear club, North Korea will not stop short at this point.
So the end of the conflict with North Korea is near. That’s the good news.
The bad news is that the most optimistic scenario involves a regime change, whether enacted by internal or external forces. The more pessimistic and perhaps likely scenario would be military action entailing great loss of life. What This Means For Gold Despite everything I’ve just said, let me stress that it’s much more likely that the current impasse will be resolved peacefully somehow. That’s usually what happens.
So it’s also likely that gold will see a pull-back after calm returns.
However, given the rapid acceleration in gold’s rally late yesterday, it seems that we’ve seen some short-covering come into play in the “paper gold” markets. If that continues, gold could establish an entirely new, higher trading range above $1,300.
It’s also possible that this crisis is enough to finally tip the stock market over into a correction, and that this could help send the economy into a recession.
In either or both cases, we would see the Fed halt its quantitative tightening program, and perhaps return to quantitative easing. That would send the gold price up hundreds of dollars from today’s levels.
Bottom line: Don’t speculate on gold on the basis of this current crisis. But make sure you have a solid hedge position in physical gold and/or silver, and are also well-positioned in some of the exploration stocks that I’ve been recommending.
Some of these stocks have recently as much as tripled on exciting new drill results, and I’m recommending new near-term opportunities in Gold Newsletter. (Click here to subscribe and get all the details.)
One important point I’ve been making is that markets sometimes don’t let us see the reasons why they’re rising. Only later, after the move is well-established, is the reason revealed.
I’ve been puzzled by how gold has steadily risen this year during historically low market volatility and in the absence of overt bullish fundamentals. Still, I told our Gold Newsletter readers to heed market sage Jim Dines’ advice: “Don’t think...look!” In short, gold was telling us that something was coming up, and to be prepared.
Now we know. All the best,
Brien Lundin
Editor, Gold Newsletter
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