Don’t Be Fooled By Gold

Gold has been on a tear in recent months and rightly so, it seems, looking at macro events. What started as an Israeli-Palestine conflict has escalated to include Iran, which in turn is leading to speculation that the US may be get involved, and by then war appears to be a real possibility. Worse still are the prospects for further expansion if other countries are brought into the fray, and a global conflict spirals.

Against this backdrop, gold has soared as a safe haven asset. But it’s that time in the rally when the final few stragglers who missed the early party may be sucked in prior to a reversal.

Make no mistake about where gold is headed, but just don’t forget the timing of the moves, let us explain.

Key Points

• • Rising tensions involving Israel, Iran, and potential U.S. involvement have heightened global conflict fears, boosting gold’s appeal as a safe haven.
  • There is a potential short-term peak in gold prices, followed by a pullback as late investors who joined during the uptrend may face losses.
  • The long-term outlook remains bullish despite potential near-term dips, with ongoing global uncertainties likely to continue driving gold’s demand. 

Where Is Gold Headed Next?

In the short-term, gold has the potential to peak and pullback. The market has an extraordinary ability to attracts late-to-the-party investors who see a rising trend and think it will remain in place for the foreseeable future.

Of course, we know pullbacks and non-linearity are par for the course, but when emotions take hold the final few end up paying a high price for trading on emotion before discipline.

If the narrative begins to spread that Iran simply needed to respond following Israel’s strikes on its embassy in Syria, the odds are gold will pullback from here over the next month, and burn the latecomers.

But don’t be fooled by where it’s headed next.

The Long-term Trend

Over the coming months thereafter, the risks are very high that a global conflict will escalate and gold would no doubt be a safe haven at such a time. For example, what if Iran’s recent attack that was well-signaled with slow-moving drones was simply a strategy to identify Israel’s defense systems, and to more precisely attack them at a later stage? The possibilities are endless and unfortunately many don’t lead to peace.

The price of oil and gold are both signaling that tensions are not over, even if they are tempered in the near-term. The next few weeks may lead to more rhetoric calling for calm but summers are historically periods when conflicts, if they are to escalate, do.

If so, it will be time to get the shovels out again and start digging for gold, and hold it close, but the timing will be important. Rather than chase now, it may well be a much more lucrative option to hang tight, and wait for a pullback before buying what appears will be a near inevitable long-term bullish trend.