Gold is the currency of choice in times of crisis. Whether it is called a “flight to quality” or a “flight to safety,” gold is the world’s money of choice in times of trouble. That’s because of its superior qualities as money, qualities that have outlasted every conceivable type of government and countless paper money schemes, and survived world wars and global depressions.
Gold is a sensitive barometer of trouble. Sometimes the price of gold jumps and only later do we get the news of a military incident or confrontation somewhere in the world that triggered the move.
With that in mind today I’d like to remind you of a few global trouble spots, dry geopolitical tinder that can burst into flames with little warning and spread into global wildfires.
IRAN: Economic wars and trade sanctions are often preludes to hot wars. The kind of rhetoric bouncing back and forth between the US and Iran is now so fever-pitched that the only surprise will be if things don’t boil over.
The Strait of Hormuz is the world’s most vital oil artery, a waterway transited by hundreds of tankers each month, and by 17 million barrels of oil per day. Iran doesn’t have much leverage in a confrontation with the US, but it has made clear that it will target shipping through Hormuz in a crisis.
Often debated is how long Iran could keep the chokepoint closed. But more important is how a confrontation there is likely to spread. In any event, I am not even willing to guess just how high gold will go if the US and Iran reach a tipping point in the Persian Gulf.
But the move will be dramatic.
RUSSIA: This week U.S. ambassador to NATO Kay Bailey Hutchison threatened to “take out” new Russian missiles in development. Others have already pointed out the obvious, that when you “take out” a country’s weapons, war ensues (cf. when the US “took out” Iraq’s non-existent WMDs). Russia, said the ambassador, is “on notice.”
Over at the UN, ambassador Nikki Haley is “seething,” “threatening,” and “warning” Russia on an almost daily basis. (For fun, I did a Google search on “Nikki Haley warns Russia” and got 2,330,000 hits!) How any of this fits in with President Trump’s campaign position on seeking peace with Russia is not the subject of this post. Instead, we will point out that, like it or not, Putin is correct that the promiscuous use of economic sanctions hurts the dollar in the long run.
SOUTH CHINA SEA: There was a close encounter between the US and China this week when a Chinese ship came within 150 feet of a US destroyer in the South China Sea.
China warned the US to leave the area, while Vice President Pence charged China with “reckless harassment.”
While that incident has been widely reported, less noted is that the US Navy has drawn up classified plans to stage a global show of force in the region in November.
The world can be a very dangerous place. It only takes one spark to ignite a conflagration.
And to light the fuse on a runaway gold market.
As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at 602-955-6500 or toll-free at 877-354-4040.