US belligerence and gold
Any relationship between war and gold is indirect. This is where those who believe that uncertainty is good for gold get it wrong.
ALASDAIR MACLEOD
In response to President Trump’s weekend bombing run against Iran’s nuclear facilities, traders in energy commodities and precious metals were keen to see how prices were affected when markets opened in the Far East this morning.
They changed little.
Iran’s parliament passed a resolution authorising the leadership to close the straits of Hormuz, potentially sending a price shock to western markets.
But that option appears unlikely, because very little of the Gulf’s oil goes to the US: it mostly goes to China and other Asians.
Other than a price shock, nothing would be achieved other than making life difficult for Iran’s allies.
In any event, for insurance purposes western-insured shipping is effectively excluded from the Gulf, leaving access open to Asian nations friendly to Iran.
Therefore, we can assume that Gulf shipments will continue, except for goods, oil, and gas to Europe.
It would therefore appear that market reactions to America’s bombing are proportionate for the moment.
But it is a developing situation.
This also holds true for gold: primarily, it is the prospects for the dollar’s purchasing power that matter.
If, in the coming weeks it appears that energy costs will increase consumer prices, or put another way undermine the dollar’s purchasing power, then this should be reflected in a higher gold price — not least because of the consequences for bond yields and the US government’s debt trap.
To understand these prospects requires an assessment of how the conflict will progress.
We are told by the media that the regime could fall at any moment.
But we should dismiss western propaganda, which is simply belligerent against Iran.
Bearing in mind that it has survived western sanctions and attempts to undermine it for the last 46 years, Iran’s government knows how to survive.
It will not be toppled easily, and even though the theocracy is extremist and distasteful to western eyes, America’s intervention only solidifies internal support for the Ayatollahs and gains Arab sympathy for Iran throughout the region.
Iran has threatened US bases in the region, which would only serve to bring America into direct conflict. That would be unwise.
The Iranians would be far better continuing to attack Israel, now that its iron dome is breached.
It should concentrate on destroying Israeli airfields and air power.
Iran’s resources are not limitless, but nor are Israel’s.
Israel has been obliterating Gaza since October 2023, and it has successfully fought Hezbollah.
It now risks credit downgrades.
Iran probably has greater resource reserves, having only used surrogate forces so far.
It would probably suit Iran to fight a war of attrition against Israel.
In summary, It appears unlikely that US bombing this weekend will lead to Iran attacking US bases or closing Hormuz.
And gold will watching consequences for the dollar as they develop.
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