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Why gold remains the safe haven asset of choice in times of geopolitical uncertainty

Why gold remains the safe haven asset of choice in times of geopolitical uncertainty

Release Date:  Saturday, April 14, 2018

Gold and Silver Prices

Gold prices rose and ended higher on the last day of the week, heading for a second consecutive weekly gain as U.S. tensions with Russia and China continue and as Western military action in Syria remains unknown. 

“U.S. President Donald Trump and his national security aides on Thursday discussed options on Syria, where he has threatened missile strikes in response to a suspected poison gas attack…Trump, however cast doubt over the timing of his threatened strike, tweeting that a U.S. attack “could be very soon or not so soon at all.”

“Gold is often used as a store of value in times of political and economic uncertainty.

“’Donald Trump back-pedaled a bit in his morning tweet yesterday, but the danger is still there that the situation could escalate with Russia due to a military attack on Syria,’ Quantitative Commodity Research consultant Peter Fertig said. ‘We are back at a cold war, which easily could turn into a hot war if someone loses their nerve - and in such a situation, gold is a haven.’” (PRECIOUS- Gold on track for second weekly gain as Syria concerns linger,” Reuters, 04.13.18)

Gold ended the week up $10.60, closing at $1,348.60. Silver ended the week up $0.225, closing at $16.645.

 Why gold remains the safe haven asset of choice in times of geopolitical uncertainty
- Ford, Proactive Investors

As uncertainty rises, so do gold prices which is why gold is the choice for the risk-averse.

“Gold is famously correlated inversely to the dollar and since the dollar has been weak of late the price is relatively strong, at just over US$1,340 per ounce.

“In times of significant geopolitical uncertainty, the so-called “safe haven” attractions of gold tend to override the influence of the dollar in pricing, as investors seek shelter in the world’s oldest store of wealth.

“…markets continue to ponder the other major threat to asset prices, the potential of a trade war between the USA and China. This is likely to have less of a direct impact on gold, although on a longer-term view it is arguable that the economic risks of a trade war and its actual consequences may also highlight the attractiveness of gold as a safe haven.

“One reason why gold can be used as an effective geopolitical barometer is that on some measures, at least, the gold market is quite small.

“According to calculations made by Ross Norman at Sharps Pixley, the amount of gold produced every year is roughly equivalent to the market capitalization of the third largest company on the London Stock Exchange, British American Tobacco, which is worth around £100bn.

“The value of all the gold in the world’s vaults and in jewelry, amounts to a much larger US$7.7tn, slightly more than the value of the world’s entire issued currency.

“If that sounds much larger, then it is, but only in relative terms. The value of global stock markets is put at close to US$75tn, while global debt is set at US$215tn. And even that pales against the value of the global derivatives markets, which no-one really knows, but which could be as high as US$1.2 quadrillion.

“’Gold,’ says Ross Norman, ‘to put it mildly, is a deeply minority sport that punches above its weight.’

“…if the jungle drums of war start beating loudly, then uncertainty rises and the gold price does too. That’s not just because the value of other assets becomes more questionable, or because earnings and profits are likely to fall. 

“It’s also because the dangers of that huge derivatives book unwinding suddenly leap back into the forefronts of investors’ minds.

“Warren Buffet calls derivatives as they are currently structured “weapons of mass destruction.” Not everyone agrees with that view, but it is reasonable to concede the risks posed by a major and sudden shock to the global system of trade and commerce such as full-blown war between Russia and America. The financial consequences of that might make the global financial crisis seem like a walk in the park.

“Historically, cattle, land and gold have been the three great stores of wealth. Real estate has held its relative value more than cattle, but it is less easily exchanged.

“For the risk-averse, gold remains the only significant option, however much of a “minority sport” it may be.” (“Why gold remains the safe haven asset of choice in times of geopolitical uncertainty.” Alastair Ford, Proactive Investors, 04.13.18)

Housing Market Shows How Gold Maintains Its Value As Purchasing Power Drops-Goldmoney - Christensen, Kitco News

Gold holds value over the long-term even though it may be volatile short-term and remains the ultimate global currency.

“Soaring housing prices in all the major markets do not reflect a problem within the housing market but demonstrates a problem with global currencies, according to one gold bullion investment firm.

“In 2017 Canada saw the fast rise in housing prices in the world. According to research from Goldmoney, Canadian homes, priced in Canadian dollars have risen 350% since 1990. However, home prices, measured in gold ounces has been relatively unchanged for the last few years.

“While many economists have attributed higher Canadian home prices to growing demand, mainly from foreign investors, Wieler said that he sees the higher prices as a symptom of devalued fiat currencies.

“’In other words, the Canadian dollar lost its purchasing power dramatically, while gold prices fluctuate and remain in line with real assets,’ said Stefan Wieler, director and lead researcher at the investment firm in a recent email comment to Kitco News. ‘But’s it’s not just Canada, you can see the same trend in all the major housing markets in New York, Los Angeles, Paris, Geneva, Shanghai,’…’ One thing all these places have in common is unhinged central bank monetary policy.’

“While gold can be volatile over the short-term, Wieler said that the research shows that the yellow metal does a better job of holding value over the long-term, compared to fiat currencies. He added that the housing data shows that gold remains the ultimate global currency.

“In the global marketplace, gold has seen significant gains against the U.S. dollar. June Comex gold futures last traded at $1,340 an ounce, up 2.6% since the start of the year. Meanwhile, the U.S. dollar has dropped 2.5% against a basket of global currencies year-to-date.

“While there continues to be underlying support to bring back a global gold standard to support devalued currencies, Wieler said that developing technology has made the issue a mute topic…consumers can take direct control of their purchasing power. ‘Because of technology, you can do everything with gold that you can do with fiat currencies,’ he said. ‘In particular, with our platform, if you are a merchant, you can receive gold as a form of payment and companies can even pay their employees in gold.’

“Looking ahead, Wieler added that he expects more consumers and business to turn to gold as a global currency as the world deals with the impact of global devalued currencies. (“Housing Market Shows How Gold Maintains Its Value As Purchasing Power Drops-Goldmoney,” Neils Christensen, Kitco News, 04.12.18)

‘Take your money and run.’ Investor David Tice warns on ‘pretty dangerous’ stock market - Landsman, CNBC

Famed bear fund investor believes a stock market crash is almost unavoidable.

“In a note to CNBC, David Tice wrote that investors should ‘take your money and run.’
"’You guys have enjoyed the party,’ he said Wednesday on CNBC's "Trading Nation." ‘There are a lot of people dancing. But I think that could be pretty dangerous. I'd say the last couple of 10 percent declines were a sign that the band is about ready to go home.’
“Tice has viewed the February correction as a foreshock - predicting stocks could lose 20 to 25 percent of their value by year's end.
"’All this volatility with the VIX [Cboe volatility index] having doubled is very, very disturbing,’ said Tice. ‘We're testing 200-day moving averages on some of the hot stocks like Google and Facebook.’
“… nowadays, Tice says he's very worried about the trade wars and Syria. He also cites President Donald Trump's rhetoric toward Russia as an additional source of anxiety.
“Tice also sees rising interest rates putting the economy under pressure. ‘You have a Fed that is raising rates,’ he noted. ‘We have a Fed chairman who really doesn't care about we've had two 10 percent declines both in February and then March/April. Those are not great signs.’
“According to Tice, Fed rate hike cycles historically lead to recessions and deep market declines. He says this time is no different because the market is very overvalued.
“He reiterates that investors should consider buying gold.
“’In this kind of environment with geopolitical uncertainty and trade uncertainty, you've got to be in gold,’ Tice said.” (“’Take your money and run.’ Investor David Tice warns on ‘pretty dangerous’ stock market,” Stephanie Landsman, CNB, 04.12.18)

Gold is taking back its crown from bitcoin as best defensive play, strategist says - Lahiff, CBC

Gold bull not over yet and a break out likely as gold retakes its mantle as the key defensive asset against the bitcoin.

“Gold soared to two-year highs this week as uncertainty rattled the market. The bull run isn't over yet, says one strategist.

"’I am a buyer. I really do like it,’ Boris Schlossberg, managing director of FX strategy at BK Asset Management, told CNBC's "Trading Nation" on Wednesday. It's ‘retaking its mantle as the key defensive asset against bitcoin, which has certainly suffered a lot over the last couple of months.’

“As of Thursday, gold, the traditional safe-haven asset, had risen just over 3 percent this year. It was down 0.72 percent on Thursday.

“Bitcoin was seen as an emerging defensive play last year as money flowed into cryptocurrencies through 2017. Since hitting its all-time high in December, bitcoin has tumbled 60 percent. However, bitcoin surged Thursday morning to briefly trade above $8,000.

“Gold's rise is not a new development, says Chris Verrone, head of technical analysis at Strategas Research Partners. In fact, its rally has been years in the making. ‘This improvement in gold is now about 4 or 5 years old,’ Verrone told CNBC on Wednesday. ‘We have this big base that’s been taking shape really since late 2012.’

“Gold prices found a bottom in early December 2015 after hitting a multiyear high in late 2012. Since that low, gold has surged 28 percent to trade at around $1,347 an ounce.

“If gold can break above the next key level of resistance, it would be a big positive for gold prices, says Verrone.

“’This $1,375 level is key. That's been resistance over the last couple of years,’ he said. ‘We ultimately think it does break out above that.’

“Gold has not seen $1,375 since mid-2016.

“But Verrone says the fact gold continues to push higher in recent months is a positive sign a trend higher can continue and it can burst past its resistance level.

"’What we notice here are the higher lows over the last two years so every time they've tried to sell gold it's come back,’ he said. ‘We think ultimately that means it breaks out.’ (“Gold is taking back its crown from bitcoin as best defensive play, strategist says,” Keris Lahiff, CNBC, 04.12.18)