Will War Send The Price Of Gold Soaring?
Here it is gang: an article about gold.
As most of you know, I ignore the gold bugs since they tend to know not what they are talking about. They promote gold as being a buy based upon flawed theories that are historically wrong.
The latest is the idea that gold is a hedge against rising prices, i.e. what most call inflation.
Of course, the last 24 months revealed how much of a lie this is, for both gold and Bitcoin. The latter was even a bigger myth as the price of the coin dropped like a rock as the CPI numbers went up.
So why I am proposing anything about gold?
Because there could be things happening in the next 15 months which could send markets crazy.
Hedge Against Uncertainty
Forget all the bull crap.
There is one long established use case for gold: the hedge against uncertainty.
When things get rather questionable, that is when gold can rise. Nothing screams this more than war.
Unfortunately, there is a realistic expectation that tensions around the world will escalate. We have Russia against the US in Ukraine: China and Taiwan; the Iranaians and Saudis.
Hell, even North Korea is opining about going after South Korea.
In other words, there is enough brewing where things could get rather ugly.
Wars tend to be very good for gold. It is seen as a safe haven for much of the world. This is a sad reason for people to root for prices going up but, hey, I doubt anyone reading these words is responsible for starting this stuff.
We can only watch what takes place and respond.
As we progress through 2023, it is likely that things get even tenser. There is no way to truly forecast how all of this will turn out. That said, we can easily conclude that it will not take much to get some of these things exploding.
Could we see nukes out of Russia? Will NATO respond? Does Xi feel backed into a corner and try to distract the nation by moving on Taiwan?
All of this is on the table.
Forget The Central Banks
There are some who look at the actions of the central banks, claiming they are stocking up on gold as a way to get away from the USD. Don't buy into that nonsense.
As we repeatedly showed, there is a dollar shortage around the world. This is in both USD, the currency, and the ability for international bank balance sheets to expand. With so much debt out there denominated in USD, central banks have to get enough dollars in the country if corporations are going to make good on their debt.
Of course, this is not great for the local currency but that is another article.
Hence, we see a massive lower of US Treasuries being held by central banks because they are trying to access dollars. Unless you are the Bank of Japan which found their Treasuries disappear right from under their noses.
The BoJ loaned its Treasuries to the commercial banks who decided to sell them to try and prop up the JPY. Obviously that didn't work and the country is now without access to all that USD.
Of course, this is nothing that a few defaults won't take care of.
All the USD denominated debt is pushing central banks back into a corner. They have no choice but to supply their banks with the currency that is needed. This is the main motivation for their actions.
Could We See WW3?
Some are fearful we will see an escalation of severe proportions.
While none of us want this, it is a situation whereby it could send the price of gold soaring. Outside of that, if tensions somehow diminish, gold will likely keep trending.
The question is what will happen?
Only time will tell but things could get a lot tenser throughout this year. That would create a great deal of uncertainty which could send a lot of people running into gold.
Remember, just because a lot of people repeat something does not mean they have an understanding of market dynamics.
With war, it is always preceeded by capital flow. Watch this and things will be revealed to us.
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