Geopolitical Tensions Could Make Gold Shine Brighter



Attack on Syria

After President Donald Trump ordered the launch of nearly 60 Tomahawk cruise missiles on a Syrian air base, precious metals and oil took off. However, the US dollar and stocks plummeted. Notably, the attack wasn’t officially approved by Congress, and Russian President Vladimir Putin condemned it as an act of aggression against a sovereign state. The attack came in the wake of a chemical gas attack in the Idlib Governorate in northwestern Syria earlier that week.

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Afghanistan attack

To the already somber mood was added news of the United States using its most powerful conventional weapon—the so-called “mother of all bombs”—on ISIS forces in Afghanistan on April 13, 2017.

Geopolitical tensions and gold

Gold and other precious metals are known for their safe-haven status. When uncertainty mounts, investors head for assets with safe-haven appeal and low counterparty risk. Some investors are clinging to gold in fear of further escalations around the world. The standoff between the United States and Russia adds to the worries, and Trump’s pledge to solve the North Korean problem with or without China’s help has deepened geopolitical uncertainty.

Meanwhile, UK Royal Mint sales rose ~20.0% in 1Q17. Gold demand in the United Kingdom and Europe is mainly driven by negative interest rate policies as well as political instability. Elections are due in several European countries in 2017.

Uncertainty and instability have usually been very conducive to higher gold prices (GLD) (IAU), which could have a positive effect on gold equities such as Hecla Mining (HL), AngloGold Ashanti (AU), Alacer Gold (ASR), and B2Gold (BTG). Combined, these four stocks make up 9.5% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).


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