Have you heard of Dennis Gartman?
Last December, he said gold would be the top commodity this year. Not a bad call. The yellow metal’s soared 13% this year. That compares to silver and platinum, up 6% and 4% respectively.
Yet Gartman doesn’t call himself a gold bug. He doesn’t think the world will come to an end. Or that governments will default on their national debts.
His reason to own gold: central banks.
Gartman believes that central banks want to destroy their own currencies. And that’s why he believes gold could thrive as an ‘alternative currency’. According to CNBC on Monday, Gartman said: ‘A year from now, gold will be demonstrably higher than it is right now… I would certainly think we could see $1400 [an ounce] in dollar terms.’
As a resources analyst, I’d love for that to happen. But I can’t see it happening yet. US$1,400 per ounce will come when confidence in government crashes, similar to what happened in 2011/12. That’s when the sovereign debt crisis nearly played out. Greece, Spain, Portugal and Italy nearly defaulted on their national debts.
Gold surged during the uncertainty.
Governments kicked that can down the road.
Today, with confidence in government strong, there’s little chance of defaults anytime soon. That’s why gold’s unlikely to blast off just yet. But don’t worry. Even if the yellow metal doesn’t skyrocket now, it doesn’t mean you can’t make money buying the best gold juniors over the next year.
The story behind gold’s rally
Fundamentally, the story for gold hasn’t changed. It has rallied recently on geopolitical threats and a weaker US dollar. The US dollar remains in a downtrend and global tensions, while lessening, are still there.
From The Guardian last week:
‘Donald Trump has threatened to “totally destroy” North Korea, in a bellicose first address to the United Nations general assembly in which he lashed out at a litany of US adversaries and called on “righteous” countries to confront them.
‘In an address heavy with echoes of George W Bush’s “Axis of Evil” State of the Union address more than 15 years earlier, Trump said: “The scourge of our planet today are a small group of rogue regimes.
‘“The US has great strength and patience,” Trump said. But he added: “If it is forced to defend ourselves or our allies, we will have no choice but to totally destroy North Korea.”
‘As alarmed murmurs spread around the hall, Trump had another barb. Using his newly adopted epithet for Kim Jong-un, Trump said: “Rocket Man is on a suicide mission for himself and for his regime.”’
Donald Trump — and I’m speaking as a fan of his work — is an egomaniac and military hawk. He’s a businessman and often changes his mind, which seems erratic. You never know what will happen next.
Donald Trump’s White House is also run by generals.
Jim Mattis is the Defence Secretary. Mattis was a former marine general. He’s well-known for leading a successful tour through one of the bloodiest parts of Iraq.
John Kelly is another retired marine general and Trump’s Chief of Staff. Kelly served three tours in Iraq and oversaw Guantanamo Bay.
National Security Adviser HR McMaster was also a three-star Army general.
The threat of another war is real — especially with multiple military hawks in charge of the US.
What rising global tension could mean for gold
Kim Jong-un is living dangerously. Not that the dictator cares much. The North Korean leader risks being overthrown if he shows weakness. That’s why he warned ‘mentally deranged’ Trump would pay dearly for his threat to ‘totally destroy’ North Korea.
News.com.au reported on Monday:
‘NORTH Korea’s Foreign Minister branded Donald Trump “a mentally deranged person full of megalomania” as he said a strike against the US mainland was “inevitable” at the UN.
‘Ri Yong-ho spoke hours after US war planes flew the closest they have been to the pariah state this century in a show of force by the Pentagon, reports The Sun.
‘Mr Ri hit back after Mr Trump branded Kim Jong-un “rocket man” and said he was on a “suicide mission” at the same venue last week.
‘He added that, “none other than Trump himself is on a suicide mission,” saying Mr Trump’s insults made “our rocket’s visit to the entire US mainland inevitable all the more”.’
My view is that both leaders are all talk. But you never know. Kim Jong-un is erratic and, if influenced by his inner circle, could go all the way and start a war. Remember, Kim Jong-un only cares about image. If he shows weakness, there’s a risk that he could be assassinated by one of his generals.
The North Korean dictator might not start a war tomorrow. But he could easily fire another missile. That’s why you should trade on your toes. Because, at any moment, if tensions start to rise again, gold could fly higher.
Editor, Resource Speculator
PS: If you’re not interested in buying the best gold juniors on the ASX, I’d urge you to take a look at nickel and diamond stocks instead. In my view, these sectors offer two stocks which could make triple-digit gains over the next few months. Details here.