January 2020 - Week 2 Edition
Gold Up Again
Gold held on to most of its Iran Hot War Gains even though there was no escalation of hostilities beyond Iran’s initial response last week. Gold was $1,527 on January 2, before the missile drone attack on Iranian General Qasam Soleimani, and it remains near $1,550 after peaking at $1,573. After war tensions cooled, there was greater interest in precious metals and coins at last week’s major Florida convention. Attendance was up dramatically. I call it the “pizza box indicator.” If coin dealers have pizza boxes piled up and wear tennis shoes to work, that means they can’t afford to break for lunch or sit much, so business is good. I could tell business was good because the aisles were packed, and I always had to dodge the crowds.
Gold and the Dow Stage a “Dress Rehearsal” for Gulf War III
During the opening week of 2020, gold and the U.S. stock market staged a “dress rehearsal” for how those two markets might respond to a more extended Middle East war in the Persian Gulf. This time around, the world seemed to “get lucky” in the sense that the U.S. missile strike was perfectly accurate in killing the intended target, Qasam Soleimani, with no civilian collateral damage, and then the Iranian missile response did not result in any U.S. military or civilian deaths, and Iran indicated that there would be no further response. Both sides were cautious and measured in their military moves this time around.
In the first week of 2020, gold rose from $1,515 to $1,573 (+3.8%) during this military action, while the Dow Jones Industrial Average dropped 234 points on the killing of Soleimani and another 120 points on the evening of the Iranian response before learning how ineffective that response was. Had this conflict escalated, there is no telling how much further gold would have risen or the Dow would have fallen.
Wall Street Journal reports highlighted the connection of gold to the Mideast in their reports last week:
“Gold jumped to its highest level in almost seven years with tensions between the U.S. and Iran escalating, as investors favor the safe metal to protect against a market downturn. The advance extends a rally that began last year, when uncertainty about global trade policy and fears about an economic slowdown propelled gold to its best annual performance since 2010.”
--“Gold Hits 7-Year High in Rush to Safe Assets,” Wall Street Journal, January 7, 2020
“Gold prices surged Tuesday night to their highest level in nearly seven years. The rally, sparked by Iranian missile attacks on bases in Iraq where US. troops are stationed, later fizzled and is unlikely to continue unless the conflict begins to affect expectations for the American economy.”
– “Gold Price Hinges Upon More Than Its Safety,” Wall Street Journal, January 8, 2020
This is something we have been warning readers about for several months. It pays to stock up on gold in advance of any such conflict, for the markets can move very rapidly when such conflicts begin. When looking for a dealer, be sure to check for someone with competitive prices as well as quality award-winning information. My many media appearances and newsletters about gold and rare coins have won Best of the Year awards from the Numismatic Literary Guild and the Press Club of Southeast Texas.
Beware Comparisons to $850 Gold and $50 Silver in January 1980
Next week marks the 40th anniversary of gold’s meteoric rise to $850 per ounce in 1980, when silver also reached $50, its all-time high. Silver was the big driver in this case, due in part to inflation fears, but mostly from a cornering of the silver commodity market by the Hunt brothers. It’s important to remember how brief this market peak lasted. Gold was only over $800 for two days and it was only above $700 for five days. Silver was over $40 for only seven days. A year earlier, the metals were FAR lower than that:
As you can see, a year before their price peaks, gold was under $217 and silver was under $6, so they gained 292% and 725%, respectively, in just one year. What’s more, they fell even faster in the following two months. By the end of March, gold lost 42% and silver lost 72%, when the Hunt’s scheme backfired.
One lesson from this is that you can’t really corner a commodity market like silver. A second lesson is that you should distrust anyone who tries to tell you that gold or silver is a bad investment by comparing its current price to its peak in 1980. A key tenet of “lying with statistics” is a selective choice of starting dates. Gold is a valid substitute for cash in a low interest-rate world, and gold has done very well over the last year, five years, 20 years, 100 years and 5,000 years, so ignore any comparisons to its 1980 peak.
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