Gold Spikes To Record High In Euros As Geopolitical Risk Rises

Gold (priced in USDollars) spiked dramatically overnight, pushing towards seven-year highs as tensions in the Middle East escalated. Then, once Trump and Zarif had tweeted de-escalations, gold (in USDollars) fell back to unchanged…

Spot Gold surged above $1600 overnight – its highest since March 2013…

Source: Bloomberg

And while gold is off the overnight highs, The Economist notes that the yellow metal has already been on a long rally.

“Nobody really understands gold prices, and I don’t pretend to understand them either,” Ben Bernanke, then chairman of the Federal Reserve, told America’s Senate Banking Committee in 2013, after a turbulent few months in the market for the metal (it hit its all-time peak in 2011, at the height of the euro-zone crisis and following a downgrade of America’s credit rating).

Yet it is not difficult to understand why the price of gold hit its highest level since early that year – $1,610 per ounce – on January 8th.

The jump to a near-seven-year high followed the drone strike that killed Qassem Suleimani, leader of the Quds Force of Iran’s Islamic Revolutionary Guard Corps, three days earlier.

Investors typically seek sanctuary in gold when geopolitical risk soars.

The rise of 2.85% over two trading days is similar to those after other Middle Eastern flare-ups. (The killing of General Suleimani also caused oil prices to leap: Brent crude rose by 5%, briefly topping $70 a barrel for the first time since May.)

In fact, the price of gold (in USDollars) has been rising for a while, climbing by more than 25% since November 2018. The effect of General Suleimani’s death, at least so far, is just an additional upward tick. In fact, in Euros, the price of gold has never been higher…

Source: Bloomberg

John Pierpont Morgan, eponymous founder of America’s biggest investment bank, seems to have foreseen this, quipping that “gold is money, everything else is credit”.

Gold is also at 40 year highs in Yen…

Source: Bloomberg

And, in case you are unable to see the difference between judging the USDollar against its ‘fiat’ friends and a hard asset, the following chart should help…

Source: Bloomberg

And when the return for providing credit is close to zero, it is little surprise that investors want their money in gold.