Gold rallied to 1300 very suddenly Monday in response to news on two fronts. First, US-China trade war negotiations headed sharply south. Second, heightening tensions in the Middle East sprang into focus with attacks on oil shipping in the Persian Gulf. After the initial jump gold was unable to continue above 1300 but has clung to the 1300 level since then.
Escalations in the Middle East came as a shock to US-focused investors and reporters alike. Heightening US-Iran tensions brought the region back into the picture. Last week, Iranian President Hassan Rouhani said Iran was “partially withdrawing” from a nuclear deal, while US President Trump upped his rhetoric toward the area amid reports he was considering sending 120,000 troops to beef up security. Days earlier the Pentagon announced they were sending an aircraft carrier strike group and bombers to the region, in response to reports Iran was putting short-range ballistic missiles on ships in the Persian Gulf. Then several oil tankers were attacked in a low-level fashion, “below the level of war” in one observer’s words.
As we know, gold historically tends to firm up in times of heightened insecurity. All this sounds like insecurity to your friendly Gold Enthusiast. However, 1300 has proven to be firm resistance in the past, and it is very likely to do so again now. We’re looking for gold to continue hovering in the 1285-1300 region until more bad news appears, or investors start losing faith in the world equity markets. So far that hasn’t really happened yet; what we’ve seen is mostly profit-protection not core-asset protection, which is what it will probably take for gold to really take off.
The Gold Enthusiast
DISCLAIMER: No specific securities were mentioned in this article. The author has small long-gold holdings in NUGT, JNUG and a few junior miners. He is not expecting to trade any of these in the next 48 hours.