Gold to Take Off When the Missiles Fly

gold prices

North Korea made headlines again overnight. It shot a ballistic missile that landed close to Japan.

The test was widely expected.

Last week, Donald Trump said North Korea should be listed as a state sponsor of terrorism. North Korea spent 20 years on the list until George W Bush removed the rogue nation in 2008.

North Korean dictator Kim Jong-un called the move a ‘serious provocation and violent infringement.

He threw a tantrum and shot a missile in protest.

Unfortunately, with a young ‘loose cannon’ in charge of a nuclear-armed country, it might not end well for North Korea…or the rest of the world. Kim Jong-un could do something extraordinarily stupid at any moment.

Alarmingly, only one mistake is needed to spark global military conflict. That could be a missile attack on a military exercise. Or a missile fired in the wrong direction, such as what happened last night.

I hope that he doesn’t engage the world in war. But, if the worst-case scenario plays out, you’ll probably want to look closer at gold — in particular the best gold stocks.

Technicals

Let’s look at the daily chart for gold:

Gold/US Dollar daily chart 28-11-12


Source: tradingview.com; Gold Stock Trader
[Click to enlarge]

The yellow metal is still consolidating between the two black horizontal lines. It’s yet to decide whether it wants to go higher or lower. But gold still doesn’t look like crashing at the moment.

There’s significant support sitting right under the market, as shown by the lower black horizontal line. The pink trend line also adds upward support. In that case, as we’ve seen over the past week, the yellow metal could stay around these levels until global tensions start to calm.

Of course, if geopolitical tensions keep climbing, gold could surge higher. But the yellow metal needs to close above the upper black horizontal line. That’s major resistance level at US$1,297 per ounce. So, if it clears that, gold could revisit this year’s high. That should be good news for gold stocks.

Now, there’s still a lot of work ahead…

Kitco, a Canadian company that buys and sells physical precious metals, wrote last Monday:

According to some analysts, the lack of follow-through buying and sharp rejection of the $1,300 level could lead to lower prices in the near-term.

“If you are a gold bull, this is very concerning,” said Bill Baruch, president of Blue Line Futures.

Baruch noted that he is also watching the 200-day moving average as near-term support.

“If we get below the 200-day moving average and break that trend line at $1,267 we will see continued weakness,” he said. “The bears are in firm control right now.”

Darrin Newsom, senior analyst at DTN, said that he is also now expecting to see lower prices in the near-term, as it appears that the market “just wants to go down.”

The article is more relevant than last week. Global tensions have heightened, but gold hasn’t broken out. 

That might be because of the potential near-term US interest rate rise. According to CME Groups’ Fed Watch Tool, there’s now a 92.8% chance of a rate increase mid-next month. That suggests a near certain rate rise.

Keep in mind that when the market is confident about a near-term rate increase, the greenback tends to move higher. Gold — priced in US dollars — typically moves inverse to the greenback.

That poses a risk for gold prices in the short term. But don’t worry. As tensions unfold in the Middle East, gold could burst higher in the months ahead. Again, that could be good news for gold stocks.

The big-picture story

CNBC reported on 20 November:

Gold prices are likely to be buoyed by the “new normal” of elevated geopolitical tensions over the coming years, Citi analysts said Monday.

The geopolitical case for gold investment has been emboldened in recent months and it seems as strong today than at any point over the last four decades, Citi analysts said. As a result, gold prices were forecast to “push north of $1,400 per ounce for sustained periods” through to 2020.

Elections and political votes, military attacks and macroeconomic crises were recognized by Citi as some of the key geopolitical events likely to influence investment into gold.

Tensions in the Middle East are on the rise.

Saudi Arabia has made hostile moves against Iran and Hezbollah — a Lebanese militant group with similar religious beliefs. Both are sworn enemies of Israel, to whom Saudi Arabia is moving closer. The two countries are trying to counter Iran’s growing role in the Middle East.

Israel has made its stance clear — it has been fighting Syrian ground support since September. The Iranians, and especially their Hezbollah proxies, are helping the Russians and the Assad regime maintain control in Syria.

The situation could spiral out of control anytime.

General Joseph Aoun — Commander of the Lebanese Armed Forces — urged his troops to be ‘fully prepared’ to confront Israel.

The bottom line: Pay attention to what’s happening in the Middle East. There could be an unpredictable showdown soon. If Saudi Arabia or Iran get involved, gold could skyrocket. That could be good news for the best junior gold stock on the ASX.

Good investing,

Jason Stevenson,
For Markets & Money

Jason Stevenson

Jason Stevenson

Analyst at Markets & Money

Jason Stevenson is Markets and Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options.

Jason Stevenson

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