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Safe Haven Demand Is Still A Real Concept

Tuesday, January 14, 2020

The recent killing of Iranian general Qassam Soleimani by the US in Iraq sparked ‘safe haven’ buying of gold amid fears that the US drone strike could be the first step towards a re-escalating conflict in the Middle East. As a result, on Monday 6th January, Gold Prices in $USD rose to hit levels not seen since early 2013 at $1580 per ounce, reflecting a rise of around 4% in a week.

Overnight on the 7th to the 8th of January retaliatory missile strikes by Iran on US military bases in Iraq prompted a further spike in the Gold Price.  The lack of US casualties may or may not have been intentional on the part of the Iranians but the action drove the Gold Price above $1600 per ounce. The world then appeared to hold its breath awaiting a US response but the price rise quickly abated when it became clear that no instant response from the US was materialising. Prices in $USD then fell back slightly over the next 48 hours as tensions eased and they eventually stabilised in the region of $1550 per ounce.

Many analysts believe that this $USD price ‘break out’ could be the trigger for a sustained period of price increases known as a bull run, often preceded by a lull in price movement as the market consolidates after an initial steep rise.

 It is interesting to note that these price rises were in the Dollar Gold Price which sets the benchmark for global rates. Prices in other currencies rose depending on the $USD exchange rate for each currency. These price increases are very different from the record breaking increases that we have seen in the £GBP price during 2019 which mostly resulted from a weakening of the Pound against the Dollar amplifying the extent of rises in the $USD global price.

Silver Prices have also risen during the recent tensions. Having experienced a three month low of $16.58 per ounce in early December 2019, Silver followed the Gold trend during the recent crisis, reaching $18.43 on 6th January and $18.57 on the 8th. Again, following a stabilisation of the political situation, Silver has fallen back to roughly pre-crisis levels.

It remains to be seen how the US/Iran situation will develop but this price movement certainly reinforces the understanding that gold is still seen as a safe haven for investors during times of geopolitical uncertainty.

The fact remains that the current crisis is by no means over and simply adds to a growing list of potential flashpoints and global tensions. The ongoing trade disputes between the US and China and the potential for a resumption of the war of words, or worse, between the US and North Korea all highlight the fact that the US faces multiple and varied threats to its military and economic supremacy around the world.

It has long been suggested that the Middle East is likely to provide the spark for the next global-scale conflict. Despite the current lull in activity in the region, changing alliances and renewed military build-ups with many groups acting as proxies for countries within the region all make for a very volatile and unpredictable period in global history.

The need for a ‘safe haven’ for investors’ funds is unlikely to be disputed for some time to come.