Gold's Big Bull Market 'Only Right' Amid 2024's Worsening Geopolitical Violence
Friday, 8/09/2024 15:49
GOLD PRICES held onto yesterday's rally in Asian and London trade on Friday, cutting the drop from last Friday's record-high weekly close to 1.7% as the rebound from Monday's crash cooled in global stock markets amid worsening geopolitical violence and tensions, led by Ukraine's counter-incursion into western Russia plus Tehran's vow to strike Israel after the assassination of two senior Iran-backed figures.
"Ukraine, powered by Western arms, stuns Russia in cross-border assault," says the
Washington Post.
"Russia brought the war to our land, and it should feel what it has done," said President Volodymyr Zelenskyy overnight.
Trading at $2428 per Troy ounce, London gold bullion rebounded 2.7% from Monday's spot-market low of $2364 per Troy ounce the lowest price in just over a week.
"Two years of war has fundamentally changed the...landscape and security outlook with a growing share of [European] GDP being redirected towards military spending," says a note from precious metals strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp.
While
Western investment demand for bullion remains weak, gold's bull market gains in 2024 "[are] only 'right' given the political & geopolitical turmoil/developments," Shiels says, also noting the strong long-term correlation between gold prices and the volume of domestic gun sales inside the USA.
"That implies another stab through double top [all-time highs] around $2480 by year-end."
While the 'Magnificent 7' mega-cap US stocks have returned a total of 42.1% over the past 12 months on
Bloomberg's 'Mag 7' index, the US defense and aerospace sector has returned 20.4% on
data from S&P Global.
Vital to electrical products and therefore to
modern military weapons, silver today showed a 5.0% loss from last weekend, setting its lowest Friday 12 noon benchmark price in London since the start of May at $27.57 per Troy ounce.
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Rallying $1 per ounce from Monday and Wednesday's 3-month lows, silver was down 14.1% from late-May's 11-year peak at $32, and on Friday it held the
Gold/Silver Ratio around 88, historically a high level for the 'safe haven' precious metal priced in terms of its more industrially useful cousin.
Natural gas prices in Europe meantime rose for 9th in 11 sessions to reach 8-month highs as Ukraine's incursion into Russia surrounded the Sudzha gas transit station, which feeds the pipeline of Russian supplies through Ukraine to consumer countries – and European Union members – Hungary and Slovakia.
"[But] even a complete halt of supplies through the Sudzha gas transit station
would have a limited impact," says the Fitch financial ratings and analysis agency, "accounting for just 5% of EU demand" in 2023.
"High gas storage levels should also help to offset any immediate supply loss, and demand for natural gas remains significantly below pre-2022 levels."
The Kremlin has
called up reservist troops to reinforce defences in Kursk and try repelling Ukraine's counter-invasion, while Russia's western region of Lipetsk declared a state of emergency after a "massive attack" by Ukrainian drones.
A Russian airstrike today
killed at least 10 people at a supermarket in the eastern Ukrainian of Kostyantynivka.
Reports meanwhile say Israeli forces in Gaza bombed the al-Mawasi "safe zone" near Khan Younis on Friday, attacking a further 30 sites in the southern city after issuing new evacuation orders to civilians in the area.
"We promise to avenge the blood of the martyr," said Esmail Qaani, commander of Iran's Quds Force in a welcome email to the new political head of Hamas, Yahya Sinwar, appointed after
the assassination of Ismail Haniyeh on a visit to Tehran.
Pakistan's foreign ministry has
denied reports by the Jerusalem Post that Islamabad is going to provide Shaheen-III medium-range ballistic missiles to Iran.
Nato member Turkey said it
killed 12 fighters from the breakaway Kurdistan Workers Party (PKK) in northern Iraq.
Gold priced in the Euro rose back to €2227 per Troy ounce, almost erasing the week's entire drop, while
the UK gold price in Pounds per ounce reached £1907, also a new all-time high when first reached in April.
New York's Nasdaq 100 tech-stock index meantime opened Friday 10% below its record high of mid-July, while European bourses traded 5% below this summer's record-high ceiling on the EuroStoxx 600 index.
Japan's Topix share index closed flat for the day, holding its loss for the week at 2.1% after plunging harder on Monday than
any time since the global stock-market crash of Black Monday 1987 amid a surge in the Yen's currency exchange rate.
That still leaves Tokyo stocks more than 15% below mid-July's new all-time high in terms of the Yen, which has rebounded by 1/10th from 4-decade lows against the Dollar over that time.
"There was a lot of
irrational use of the carry trade over recent years," the
Financial Times quotes a 'senior Japanese official', commenting on investors and speculators borrowing in a low-interest-rate currency and exchanging the cash for a higher-rate currency or asset.
With the Bank of Japan finally raising its key interest rate from zero for the 1st time in 15 years last week, "It was inevitable that there would be a very big unwinding of that at some stage," the newspaper's source says, especially as the US Fed is now expected to start cutting Dollar interest rates from 5.33%, the highest in 2 decades.
The Dollar-Yen carry trade alone saw borrowing in the Japanese currency swell to around half-a-trillion dollars between 2011 and this spring, reckons strategist James Malcolm at Swiss banking giant and London bullion clearer UBS – around half of it borrowed since 2021.
"About $200bn of those positions had been ditched over the past few weeks," the
FT quotes Malcolm, "or about three-quarters of the trades [UBS] ultimately expected to be unwound."
"How deep the carry trade is and how fast it will unwind
is anyone's guess," says commodities research head Navneet Damani at Motilal Oswal Financial Services in Mumbai, India.
"Not too much credit for it in the gold rally. It has just been pressurising the Dollar for a while now...adding fire to the many geopolitical events triggering gold prices."
Away from the Ukraine-Russia and Middle East crises Friday, former Catalan separatist leader Carles Puigdemont fled Spain overnight after returning from self-imposed exile in Belgium, avoiding a national arrest warrant over his role in the illegal 2016 breakaway referendum.
Arrests continued in the UK following the past week's 'far right' and counter protests, including people
accused of inflammatory speech and of
spreading misinformation via social media.
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