Author: Melanie Young

Despite recent geopolitical upheaval covered in our last article, Geopolitical Conflict Presents Opportunity, and rising concerns of a tightening gold to WTI Crude Oil ratio, precious metals are still set to enter a commodities boom.  With gold trading at $3,878.48 (representing a 0.1% move to the down side over 24 hours), silver at $42.75, and platinum at $1,451.57, some analysts suggest that a consolidation in gold pricing may not be out of turn, nor would it be out of place.  Overall the fundamentals look strong for precious metals and this is what fuels the bullish outlook among most Western investors.

Focussing on long term trends this outlook is substantiated well. When viewing silver’s historical pricing from the 1970s the below graph displays a typical cup and handle that indicates a very optimistic future for the metal.  Interestingly, the current invasion of Lebanon by Israel is an echo of the same conflict in 1978 known at the time as Operation Latini.  The price of silver spiked to record highs during that conflict, and with history repeating itself, could it be that silver will spike to all time highs again?

The below graph shows that commodities are currently trading below what it was before the Oil Crisis of 1973, the Gulf War of 1990, and the Global Financial Crisis of 2008, even lower than the Tech Bubble of 2000.  If history were to repeat, it is possible that as investors look for solace first in the USD and then in gold and silver, the stock market may be the one to see a major correction to the down side while precious metals enter what some call a 10-year bull cycle. Indeed, Bank of America is currently suggesting that commodities are a better investment than bonds citing “debt, deficits, demographics, reverse-globalisation… and inflation” as major contributing factors to the rise in gold and silver.

An interesting factor that plays into the above is what Bank of America calls “reverse-globalisation,” or the localisation of production and supply chains within a smaller geography.  This somewhat reflects the BRICS Nations’ multipolar world they champion, something the West is resisting at this point; however, it seems the reality of what is to come is not entirely ignored by the retail sector with retail giant, Costco, introducing non-refundable gold bullion during Covid.

Meanwhile over in China the State requested that the People’s Bank of China provide options to Chinese citizens to open gold accounts wherein they can purchase shares in allocated pooling for gold.  This State-endorsed exposure to gold will no doubt give their citizens an edge in fortifying against any upcoming financial crises, an edge that Western people do not have.

The cultural difference in attitudes towards precious metal between BRICS nations and the West becomes more pronounced every day.  Savvy Western investors will take advantage of this fact and capitalise as they ride the bull cycle up.

The recent downturn in Precious Metals overnight gives evidence that “something is rotten in the State of Denmark,” as Shakespeare so eloquently phrased it, meaning that something does not match!  At the time of writing Gold trades at $3,862.51, Silver at $45.50, and Platinum at $1,440.68, indicating a pull back over the last 5 days.  This is especially true for gold which dropped over 2% during this time frame and is making a comeback due to geopolitical events.

While this pull-back in metals earlier in the week appears to defy the overall trend, it does not alter the long-term bullish outlook held by nations, central banks and precious metals investors in general. Reserve banks continue to acquire more metal, and as tensions rise, it is expected for this trend to continue with Russia, China and India holding all time high record gold reserves.

This is further underscored by reports indicating a projected decline in gold supply due to diminishing new discoveries. Analysts warn that the limited availability of gold could drive prices even higher in the coming years, potentially pushing Gold past the $4,336 (USD $3000) mark. Indeed, Bank of America and Citibank forecast this figure earlier in the year, with USB the latest to join the choir this month.  Further, Goldman Sachs raised their gold price target to $3922 (USD $2,900) yesterday.

On the geopolitical stage tensions are rising, particularly due to the escalating Israel-Hezbollah conflict.  This is a major factor this week that brings instability to the precious metals sector on an event-by-event basis. Recent responses from Iran to Israel’s invasion of Lebanon have seen an increase in value of the USD as investors flock to it as a safer investment.  In turn this has increased the price of gold in Australian dollars due to USD:AUD exchange rates. As events unfold, interest in gold and silver as safe-haven investments will intensify, first for the USD and inevitably for gold and silver.

As conflict persists, countries in the region, including Saudi Arabia and the UAE, are likely to bolster their gold reserves, viewing it as a hedge against potential economic fallout and instability. This strategic purchasing is expected to increase demand for gold and silver, reinforcing their roles as safe-haven assets.

The dynamics of the U.S. financial markets also play a significant role in shaping gold and silver prices. Recent comments from Federal Reserve Chair Jerome Powell have hinted at potential interest rate cuts, which typically bolster precious metals as lower rates reduce the opportunity cost of holding non-yielding assets like gold and silver. As market watchers anticipate these changes, the attractiveness of gold and silver is likely to be amplified.

It remains to be seen how the Israel-Iran conflict will affect precious metals this week.  While some believe that the rush to the USD and the consequent over-night uptick in price in Australian dollars is a knee-jerk reaction to sensational media headlines, further verified kinetic escalations could turn the said reaction into entrenched panic across various markets.  Fundamentally the macro-economics that supports gold and silver’s rising trajectory remain solid. While the conflict provides fertile soil for volatility it also supports gold and silver as safe investment portfolio options.

Gold peaked at $3,879 in the last 24 hours, only $18 off last week’s all time high of $3,897.  Those focussing on the fundamentals will be looking for any opportunities to buy the dip based on the geopolitical events unfolding this week and they may be the ones who benefit most from any potential volatility.  Trading for the past two weeks have remained between $3,800 and $3,900 with recent events.  We would see that a push past $3900 would see strong momentum for gold prices in the coming weeks.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Queensland Bullion Company Pty Ltd or any other associated entities. The author has made every effort to ensure accuracy of information provided; however, neither Queensland Bullion Company Pty Ltd nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Queensland Bullion Company Pty Ltd and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.