Gold In a Time Of Crisis

Gold is BACK, Baby! And Just Like That, $2,000 is in Play Again….

You can’t make this stuff up, folks. I’ve been watching events unfold around the world and pounding the table for gold all year long. I told people that gold’s recent dip to $1,800 wouldn’t last long. Now, gold is heading higher, and everybody wants to jump on board.

The best strategy, of course, is to anticipate the course of events when they’re just starting to unfold. The time to go long on oil and natural gas, for instance, was when Russia was getting ready to invade Ukraine and the U.S. government was depleting the Strategic Petroleum Reserve. Time and again, it’s the beginning of the cycle that offers the best opportunities.

Sometimes – but not every time – the market gives you second chances and extended windows of opportunity. Investors had time to buy gold before the huge price spike on Friday. Gold didn’t move on the initial bombings in the Middle East but surged after the market figured out that the conflict in Israel wasn’t only going to last for a couple of days and then go away.

Some onlookers were surprised to see gold make a U-turn after falling to a seven-month low on October 6th. Pundits in the mainstream press acted as if they’d never seen precious metal prices spike before – and they seemed stunned that conflict and chaos would erupt in the Middle East.

Yet, this is a war that’s been going on for generations and won’t be solved even when the current conflict passes. Bear in mind that the so-called experts didn’t think that Russia’s invasion in Ukraine that started way back in February of 2022 would continue as long as it has.

It’s hard to predict how long the current conflict between Israel and Hamas will persist. If Iran gets directly involved, the war could quickly and tragically escalate. Regardless, there won’t likely be enduring peace in the Middle East in the foreseeable future.

All of this should serve as a stark reminder that the gold price isn’t solely moved by the Federal Reserve’s interest rate policy changes. Short-term financial traders lost sight of that because the market has been obsessed with the Fed for all of 2023 and completely ignored developments in the Middle East and elsewhere.

This isn’t to suggest that Fed policy won’t catalyze the gold price higher in Q4 and in 2024. Remember, the Consumer Price Index (CPI) rose 3.7% year-over-year in August and then again in September. Thus, inflation is stubbornly staying above the Fed’s 2% target, and the dollar remains on its usual path of constant purchasing power deterioration.

Since inflation has been so “sticky,” the Fed is likely to use its tools to try keeping consumer price increases in check. Therefore, investors don’t only need a safe haven against military conflicts around the world; they also need to brace their portfolios against overly aggressive, economy damaging central bank policy.

Then, there’s the other possibility, which is actually also bullish for gold. If the economy and stock market go into free fall, the Fed will have to step in and enact a round of quantitative easing to prevent a total collapse (especially with an election year coming up).

When the Fed does implement interest rate cuts, expect them to be swift and deep. Government bonds, once viewed as attractive safe-haven investments with decent yields, will quickly go back to yielding next to nothing. Gold, in comparison, will shine like a thousand suns.

Yet, you probably won’t have to wait for interest rate cuts to see big-time gains in precious metals. Oil was the first commodity to jump on the Middle East conflict, but that’s to be expected since the connection between oil and war is obvious.

It takes time, in many instances, for gold to respond to events like this. But be assured that with mainstream outlets like Reuters printing headlines like “MidEast tension keeps markets on edge,” the time for safe haven assets like gold to make their move isn’t far off.

So, what comes next? First and foremost, don’t assume that gold prices will do what you want or expect them to do. We expect gold to move in a surprising fashion – not in any way that’s priced in, predicted, or in some sort of historical mirroring of prior moves. Gold will ultimately do its thing on its own time and in its own way.

The sooner you accept this, the better. Think about the behavior of successful, seasoned investors versus amateurs. Successful investors have a thesis that’s based on historical data and research. They take their positions early and wait patiently for the thesis to play out.

Uranium is a perfect example of this. The research told me that after years of resisting it, nations would have to turn to nuclear power in order to meet their clean energy goals. I positioned myself early for huge returns in uranium, and now look at the price compared to several years ago.

Gold will do the same thing, but only when the market is ready to accept the reality of what’s happening in the world and the markets. Then, the move in the gold price will be unexpected by most onlookers but fully expected by anyone who’s really been paying attention.