Sudden negative geopolitical events such as the recent attack by Iranian drones on Saudi oil facilities have the capacity to prompt a quick surge in the price of gold. But once events like this are resolved, it’s typical for the price of gold to return to its original level. The point is that most sudden geopolitical events don’t upset the ultimate order of global financial markets for very long. As things return to normal, the price of gold can be expected to moderate from the surge.
Gold’s prices can change significantly, however, when it’s recognized that the fallout from a given geopolitical crisis has the potential to upset the global economy for an extended period. Once that prospect comes into focus, gold’s price move is no longer merely a function of a kneejerk fear-trade made on the basis that war is looming and war is bad. At that point, it’s about the perception that a war could have significant, long-lasting economic ramifications and thus exert a sustained benefit on the price of gold.
Saudi Crown Prince Mohammed bin Salman, during a recent appearance on CBS News’ 60 Minutes, made this point exactly – that a dangerous regional conflict could have far-reaching economic consequences. The crown prince referenced the recent drone attacks on Saudi oil plants, for which the kingdom (and practically everyone else) holds Iran responsible. He made it clear that the prospect of war with Iran is not simply about the exchange of bullets and bombs between the two countries, as bad as that would be. He pointed out that such a conflict also creates a potential for tremendous damage to the global economy, which is already on very shaky ground. This grim outlook is important information for retirement savers who understand how precious metals can help protect their savings during this kind of upheaval.
Saudi Prince: War with Iran Means “Total Collapse of Global Economy”
The crown prince made it plain that he sees high stakes for the global economy if all-out war breaks out between Saudi Arabia and Iran. He said:
The region represents about 30% of the world’s energy supplies, about 20% of global trade passages, about 4% of the world GDP.
Imagine all of these three things stop. This means a total collapse of the global economy, and not just Saudi Arabia or the Middle East countries.
A FoxBusiness.com article discussing bin Salman’s 60 Minutes appearance noted that in the wake of the drone attacks, 5 percent of the world’s oil production was temporarily offline and prices surged by nearly 15 percent.
The crown prince made the following declaration, as well:
If the world does not take a strong and firm action to deter Iran, we will see further escalations that will threaten world interests. Oil supplies will be disrupted, and oil prices will jump to unimaginably high numbers that we haven’t seen in our lifetimes.
The implications of war with Iran naturally assume U.S. involvement in the conflict – perhaps even direct involvement given Saudi Arabia’s longstanding status as an important regional partner to the U.S. in the Middle East. According to the same FoxBusiness.com article, independent macroeconomic research firm Capital Economics sees the U.S. as Iran’s principal adversary in any such war. The firm framed its evaluation of possible implications on that assumption in a recent note to firm clients:
War with the U.S. would cause a collapse in Iran’s economy that would directly knock around 0.3%-pts off global GDP – equal to the damage from the U.S.-China trade war so far. More important to the rest of the world, though, would be the resulting surge in oil prices and increased uncertainty, which would add to the headwinds already facing the global economy.
Gold’s Status as “Crisis Commodity” Important Once Again
As I noted at the top of this piece, acute geopolitical events will often cue a spike in the price of gold. This tendency is the reason gold is often called the “crisis commodity.” It would be hard to deny that recent events fill this bill. The combustibility of the global environment seems particularly high right now.
The economic threats alone are more than enough to send the worldwide financial infrastructure into crisis and wreak havoc on portfolios in coming months. Stressors include soaring debt – both domestic and global – and an array of other factors, such as the well-documented trade war and overvalued financial markets.
And … add to those influences a host of others, such as an untidy Brexit resolution, as well as the decision by the U.S. House of Representatives to formally open an impeachment inquiry of President Trump. Whether moving forward with impeachment is simply an act of political theatre or a serious attempt to unseat America’s sitting president, the fallout from the proceedings is likely to leave financial markets especially nervous for the foreseeable future.
And … now there is the very real prospect of a shooting war breaking out in the Middle East – a war that could see overt participation by the United States.
I also noted above that as events like these are resolved, the price of gold will frequently return to its previous level. However, in the case of political and geopolitical events that carry with them the prospect of “ripple-effect” ramifications to the global economy, the benefit to gold can be substantial.
Here’s the bottom line: As a “crisis commodity,” gold has the demonstrated capacity to strengthen in the face of practically any kind of profound turmoil. If the effects of a given crisis are short-lived, the resulting bump in the price of gold might also be short-lived, and precious metals buyers might delay their purchases. However, if the effects are sustained, as some experts expect currently, the support to gold’s prices could be both significant and long-lasting. And that leads me to believe personally that precious metals proponents may soon be boosting their holdings.
Do you own gold presently? If not, part of the reason simply may be your lack of familiarity with physical precious metals. Don’t let inexperience scare you away from what I believe could be the most important portfolio decision you’ve made in a long time. Call Augusta Precious Metals at 800-700-1008 and have a no-pressure chat with one of our knowledgeable – and friendly – silver and gold professionals.
In your talk with Augusta, you’ll learn a great deal about the potential of physical precious metals to not only keep your portfolio stable but make forward progress during periods of economic instability and even outright crisis. You’ll also find out how easy it is to purchase physical precious metals in a tax-advantaged retirement account when you open a silver and gold IRA. We are looking forward to meeting you. Call today!