To the Brink of War and Back: A Wild Week for Investors

A wild week for markets as the U.S. and Iran come to the brink of war before both sides apparently decided it would be wiser to pull back…

(Money Metals Exchange) After Iranian missiles hit a U.S. military base Tuesday night, gold prices surged above $1,600 an ounce. As gold headed toward a 7-year high, even the mainstream media had to take note. Jim Cramer and his fellow stock market pumpers on CNBC took time to lament the fear-driven buying of gold.

Fear buying of gold and other safe havens ended up being short lived. After U.S. officials reported there had been no casualties and Iran stood down, fears of World War III suddenly turned into hopes for a quick end to hostilities. Wall Street celebrated as metals markets sharply reversed mid-week.

As of this Friday, gold is now relatively flat overall for the week to trade at $1,560 per ounce. The silver market shows a slight weekly gain of 0.2% to bring spot prices to $18.16 an ounce. Platinum is off 0.4% last Friday’s close to come in at $982.

And finally, palladium pushed through the $2,000 level for the first time ever. It currently trades at $2,129 on the heels of a 6.5% advance this week.

While we can all take comfort in the tamping down of tensions between the U.S. and Iran, it would be naïve to believe that the threat of further conflict in the region is over.

It appears that Iran was in fact responsible for shooting down a Ukrainian passenger jet. If it instead had been an American Airlines jet loaded with U.S. citizens, we’d likely be seeing much more of a reaction from President Donald Trump and perhaps our military forces as well.

Iran or Iranian-backed terrorists could be planning other forms of retaliation as I speak. The assassination of Iran’s top general has stoked extreme new levels of anti-American resentment. It won’t abate anytime soon, especially as the Trump administration is vowing to impose tougher economic sanctions to punish Iran.

America is also struggling to keep Iraq from forging closer relations with Iran. Iraqis increasingly want U.S. forces out of their country.

Democracy in the Middle East never quite works out the way the foreign policy central planners in Washington envision. After so many years since 9/11, after so many trillions of dollars invested and ultimately wasted in Iraq and Afghanistan, President Trump at this point is looking for an honorable way to cut our losses.

But his neo-conservative advisors still cling to grand notions of re-making the region in our own image. And the pull of the Israeli lobby and military-industrial complex is perhaps the most powerful force in Washington. D.C. — as all Presidents come to learn.

Of course, precious metals markets will need more than occasional geopolitical flare ups to drive a long-term bull market advance. The fundamentals are turning in favor of higher gold and silver prices. From fiscally reckless trillion-dollar deficits in Washington, to a Federal Reserve obsessed with generating higher rates of inflation, to mining supplies of gold and silver looking tight, the ingredients for a big bull market are in place.

However, safe haven demand from investors has yet to pick up in a big way. We saw some of it this week, but it will likely be fleeting until the general public sees good reason to pull assets out of the stock market.

As stocks hit record highs last year, gold and silver coin sales at the U.S. Mint plunged to multi-decade lows.

The U.S. Mint sold just 152,000 ounces worth of gold American Eagles in 2019. That marks the lowest total on record going back to 1986. Meanwhile, sales of silver American Eagle coins came in at their lowest level since 2007. Now granted, a robust secondary market as a result of hordes of retail investor selling supplied the market with a cheaper alternative to the newly minted coins, and that explains part of those low numbers for 2019 U.S. minted product.

Australia’s Perth Mint, however, saw an increase in coin demand from its more internationally based buyers. Many sought physical bullion as a refuge from negative interest rates in their home countries.

As U.S. investors realize that they too face the prospect of negative real interest rates on savings and bubble valuations in equity markets, they too will increasingly find a compelling value proposition in gold and silver.