Gold Above $1,600 As Iran Retaliates / Commodities / Gold & Silver 2020

We didn’t haveto wait long for Iran’s response. After the missile attack on U.S. bases inIraq, gold briefly soared above $1,600. What should we expect next?

Iran Retaliates, Gold Rallies

On Tuesday, I wrote that “given thatSoleimani was widely seen as the second most powerful figure in Iran, we shouldexpect a response.” And, indeed, it arrived before too long. On Wednesday, justhours after the funeral of the Iranian general, Iran launched a missile attackon two military bases in Iraq housing U.S. troops.

In the last edition of the Fundamental Gold Report, Ialso wrote “the elevated geopolitical risks may supportthe gold prices, at least in the short-term.” Indeed, gold got support – andwhat a strong one! Please take a look at the chart below. As one can see, the price of gold spiked to above $1,610,the highest level since February 2013.

Chart 1: Gold prices from January 7 to January 9,2020.

However, the rally was not sustainable. When the dustsettled, it turned out that there were no casualties, and gold returned below$1,600. Moreover, both countries sent signals that they did not go to war.Iran’s foreign minister said that Iran had taken “proportional measures inself-defense” and didn’t seek further escalation of the conflict. Some analystsspeculate that the said Iranian officials even warned the U.S. the strikes werecoming, as they did not want to kill Americans, but rather to appease Iraniancitizens calling for revenge. Meanwhile, President Trump tweeted that “all iswell” in the immediate aftermath of the attack. Later, he suggested that theU.S. is not planning to retaliate:

No Americanswere harmed in last night’s attack by the Iranian regime. We suffered nocasualties. All of our soldiers are safe, and only minimal damage was sustainedat our military bases (…) Iran appears to be standing down, which is a goodthing for all parties concerned and a very good thing for the world (…) Thefact that we have this great military and equipment, however, does not mean wehave to use it. We do not want to use it. American strength, both military andeconomic, is the best deterrent.

The whole statement indicated an important de-escalation in the conflict, which createddownward pressure for gold prices. The price of the yellow metal has alreadydecreased below $1,550.

Implicationsfor Gold

What does it all imply for the U.S.-Iran conflict andthe future of gold? Well, although the tensions have been put on the backburner somewhat, it would be naïve to think that Iran is done retaliating. Therecent attacks were just a first strike, or a symbolic response necessary tosave face after Soleimani’s death. But confrontation will almost certainlyexplode again at some point this year. So,gold could receive support then.

However, while not minimizing the importance of geopolitical risks forinvesting in precious metals, I am of the optinion that macroeconomic factors are far moreimpactful when investing long-term. The recent developments in Iraq do notchange the fundamental outlook for gold. And it has deteriorated somewhat, atleast when compared to 2019. Thus, while not being a bear, I expect that aftera solid beginning of the year, gold may struggle somewhat.

Thank you.

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Arkadiusz Sieron

Sunshine Profits‘ MarketOverview Editor

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