Geopolitical Tensions Suggest It’s Too Early to Give Up on Gold

Gold is returning to bullish ways in October as the weak dollar, geopolitical tensions, and an uncertain rate hike environment continues to provide tailwinds.  Better-than-expected September jobs report had increased the bullish sentiment on the possibility of a rate hike in December. However, the unending stream of news on geopolitical tensions has continued to counterbalance the downsides of a potential rate hike. Spot gold was trading around $1,292 an ounce on October 10 to mark a 1-week high from September trading range.

We haven’t heard the last on U.S. and North Korea

The threats of military action or nuclear war (though unlikely) have been boosting the prospects of the yellow metal this month. The U.S. has succeeded in getting more than 20 countries to end or reduce diplomatic and business relationships with Pyongyang as part of efforts to cut the rouge regime to size. U.S. President Donald Trump has also posted a couple of vague tweets hinting at military action against North Korea.

As expected, Kim Jong Un is maintaining his support for the nuclear program, noting that the weapons are a like a “treasured sword” serving as a “powerful deterrent” to keep peace in the Korean Peninsula. In his words, the missiles “are a precious fruition borne by its people’s bloody struggle for defending the destiny and sovereignty of the country from the protracted nuclear threats of the U.S. imperialists.” 

Jordan Anselm, an analyst at Weiss Finance notes the unending spat will continue to bolster the bullish case for gold because both Trump and Kim Jong on are predictably unpredictable in stoking tensions.  He also notes that “gold is gradually building momentum for a breakout, a sustained push above $1,300 could trigger an inflow that could last through the fourth quarter.

Here’s the latest on geopolitical tensions in Europe

In Europe, the Catalonian secessionist move to break away from Spain doesn’t appear to be slowing down. Catalonia’s secessionist leader, Carles Puigdemont is not succumbing to pressure from Spanish authorities and he is set to address the parliament in Barcelona. The thesis of his address will be aimed at getting the region’s parliament to cast their votes on a unilateral declaration of independence that takes Catalonia out of Spain.

Political tensions are also brewing in Germany as Chancellor Angela Merkel continues in her struggle to form a government.  The three political blocs in Germany have expressed interest in creating a coalition government; however, actual act of forming the government is taking longer than expected and German investors are getting antsy. Merkel is faced with the uninspiring task of forming a coalition between the disruptive Greens, her conservative Christian Democratic Union (CDU), and the pro-capitalist Free Democrats (FDP).

The fact that Spain might split up and the fact Germany might not have a functional government until 2018 is further weakening the fundamental bullish supports for the Euro. Hence, it is not surprising that European investors are taking bigger hedges with gold.

There’s still potential in Silver

Interestingly, analysts at Standard Chartered think that Silver is undervalued and the smart investor might want to seek out the latent potential in Silver. In a note to investors, the analysts opined that “Silver’s supply and demand dynamics are supportive of higher prices in light of stagnating mine output and firming industrial demand. Indias silver imports are up almost 60 percent for the year to August while Chinas are up 45 percent.” Silver has climbed up almost 2% to $17.13 an ounce after touching a  two-week high of $17.20