The Metal Review for the Week

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The Metals Review for The Week of October 25th, 2010

To save your time, I just directly show here the metal review of this week. Just check out to see what Pitguru Daniel Cronin does for you!

The Metals Review
For the week of October 25th, 2010​

The precious metals liquidation was here, but it was gone in a flash as the Euro climbed higher and Gold and Silver start out up big in the early part of the trade week. Gold fell all the way to my target of $1,320 but was there only a few short moments as traders and investors alike bought back the precious metal to $1,350 against. This market has been very strong especially when the USD loses ground which it has over the weekend. I still think traders can pick this metal up in the $1,335 area but it will quickly move to test $1,360 again. From Bloomberg, “Gold, up 23 percent this year, is heading for a 10th annual gain, the longest winning streak since at least 1920. Bullion has outperformed global equities, Treasuries and most industrial metals, prompting record investment in gold-backed exchange- traded products. Before last week, bullion had rallied for five consecutive weeks on speculation that the Fed may further ease monetary policy, hurting the dollar. Fed policy makers meet next on Nov. 2-3……Palladium for immediate delivery in London advanced as much as 4.6 percent to $618.75 an ounce, the highest price since June 2001, and was last at $608.47. The commodity, used mostly to make jewelry and pollution-control devices for cars along with platinum, is up 49 percent this year, outperforming the three other main precious metals.”

Copper again back up to $3.88, the high for the year as equities and the Euro start to rally in the early part of the week. This market has been one of the best performers here in 2010 and is looking to ultimately test the $4.00 mark as the global recovery continues. For now I believe the market will push higher and get to $3.93 but will have some resistance at this level.

For more information, keep up with the market daily with the precious metal price report!

 

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Gold Market At Ease

Back to Gold market and The Bullion Report, it's said "At Ease". Let's see what is happening!

The Federal Reserve will be meeting next week and all eyes will be focused on the potential for another round of monetary easing. Speculation abounds as to the scope and depth of their actions, but most analysts are working on the assumption that at least $500 billion in Treasuries will be picked up over the next five months. Considering the global economic climate and the link between gold and the U.S. dollar, what could this easing mean for precious metals moving forward?

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

Easing is a banking tool that is meant to stimulate economic activity. The Federal Reserve would aim to do this with a round of Treasury purchases. This would keep them on their current course of reducing interest rates and trying to jumpstart the money supply. With these purchases, they get excess reserves to make new money. The effect can be what the name implies – it gives the banks and the economy some breathing room.

The risks to easing run the gamut between the potential for hyperinflation and the chance that the easing will not be long or deep enough to achieve the desired stimulus results. In the present environment, both situations would likely represent a bane to the Federal Reserve and a boon to gold and other precious metals.

Debasing the U.S. dollar by increasing the money supply would likely spur additional interest in gold and other precious metal investment. After all, inflation serves to devalue a regular savings account. The trick to this, and the hope of the Federal Reserve officials who support this course of action, is that the global stage will negate the effect of this round of easing. Basically, if all the other central banks are doing it, there will be no one single losing currency. This kind of “competitive devaluation” might temper the reaction from the market. The caveat is that the increase in money supply on a global level would still be a possible motivator for investors who jump on gold as an inflation hedge.

Even if the inflation-situation does not come into play, or it is successfully combated, there is still an overwhelming amount of debt created by round after round of stimulus aimed at spurring economic activity. This has increased the demand for certain investments – like gold – amid flimsy fundamentals for other financial assets. It will probably mean more business for precious metals as investors seek havens if the stimulus fails and this second round of easing isn’t enough to bolster employment and economic growth.

It will be interesting to see what the Federal Reserve commits to, following next week’s meeting. Guesses seem to be centered on the possible commitment from officials to buy up $100 billion in Treasury debt per month for the next five months. This headline may already be priced into the markets, but recent gains in the dollar set up an interesting situation. The drop in gold prices on the strengthening U.S. currency could have set up perceived value entry points ahead of any additional official announcements. According to a story from Reuters, gold traders in India were already scooping up the metal on lower prices amid their festival and wedding season peaks.

It seems unlikely that the Federal Reserve will fall short of the market expectations. Doing so at this point would bump up the dollar but it would jolt other financial markets in the process. Officials have not been working this hard for this long to rock the boat, despite some member objections to another round of stimulus. To quote Ben Bernanke’s own speech from the beginning of 2009, “The global economy will recover, but the timing and strength of the recovery are highly uncertain.” With this in mind, the effort they could be announcing next week will probably fall in line with their actions thus far. Commit to maintaining a response that adds liquidity and stimulus but keep the door open. This means giving a nudge and a wink but not committing to huge purchases right away. Look for officials to nibble at easing, not gobble.
Source: http://newsletter.berkshireassetmgt.com/?bymonyr=10/27/2010

 

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The Metal Review for The Week of November 1st, 2010

What will happen in Metal market in the first week of November? We are now going to check out the expert's analysis and prediction on the metal review.

The Metals Review
For the week of November 1st, 2010​

By Daniel Cronin

Gold and Silver both have rallied since being semi liquidated the last two weeks as new buyers came into the market as the Euro rallied against the USD ahead of the FOMC meeting this week. Per Bloomberg, “Precious metals have gained this year as central banks maintained low interest rates and governments spent trillions of dollars to spur growth. Silver has advanced 48 percent in 2010 and palladium has surged 60 percent, both beating gold’s 24 percent rise. Precious metals have outperformed global equities, Treasuries and most industrial metals, boosting investment in exchange-traded products backed by the metals.” I think an easing of the rate will surely send Gold up above $1,365 and Silver past $25.00 as these markets already have momentum behind them - another positive for them will only send these to higher heights.

Copper rallying back up to $3.80 from last week’s low of $3.71 amid the FOMC meeting as both equities and Euro rise. $3.92 is key resistance so this market will be watching out and waiting in anticipation of the Fed's next move. For now markets are trending higher but can be thrown for a loop if the Fed decides not to do anything and should unemployment rise, sending Copper back to $3.71.

Information on metal market will be daily updated at metal prices. Keep up with the changes for your trading!

 

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Gold & Silver Talk: High Marks

Gold and Silver are still the markets that people care about. They are not stable and make us crazy with the changes. One more time, let's talk about them!

Informed from The Bullion Report, today the markets eagerly anticipate an announcement from the Federal Reserve as it wraps up a two day meeting. The focus will fall on the full measure of proposed quantitative easing. Heading into the report, there has been little doubt that the Fed will take some easing measures and that the US dollar and metals markets will react. So far this year, gold and silver have made fresh highs, reigniting interest into the high marks of the past and the events that motivated them.

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

The fundamental focus for the last few years has been relatively narrow, falling on a handful of US dollar events and a broad picture of the global economic landscape. The housing and credit crisis precipitated reactions from the Federal Reserve that led to easing and a drop in the US dollar. Subsequent economic fallout including high unemployment and stagnant growth led some investors to the ‘haven’ of precious metals as an alternative asset. This has continued to bring some high price levels in both gold and silver.

The march to new highs in gold was nearly three decades in the making. In 1980, the price of gold topped $850 amid a climate of high inflation, high oil prices, and high geo-political tensions, specifically in Afghanistan. The price of gold tumbled following that peak, apparently bottoming out above $250 an ounce in 1999. The low came in as investors speculated that central banks would begin selling their gold reserves. Once the central banks of Europe signed their gold agreement limiting gold sales, the stage was set for a price comeback.

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

In the decade that followed, gold prices picked up steam, gathering momentum as geopolitical tensions began to rise and commodities prices picked up. Starting in 2006, the weakening dollar provided a likely catalyst for investors to move towards commodities. The subsequent price peaks in gold hit a climax in January of 2008 when gold broke that $850 price high. Each new high shook out some investors as profit taking ensued, but the market forged ahead to the $1,000 an ounce level, breaking through in March of that same year. After that, gold prices appeared to fall victim to the commodities exodus as investors began to focus on demand fundamentals and the potential for recovery. Plenty of stimulus was being poured into the global economy in an effort to restart the growth engines, and it appeared to have the potential to work.

However, gold came back after falling below the $700 level. Investment interest and demand, especially in ETFs, grew exponentially last year. That kind of hunger for the perceived haven of gold propelled the market back over the $1,000 mark and beyond. For now, gold has already managed to top $1,380, and there appears no shortage of analysts who thing the twin threats of inflation and fear could move things higher.

Gold prices have not stood alone in hitting fresh highs. Silver has also managed to break out, topping previous high marks. However, cresting the all-time peak in silver prices could be a little more challenging. The peak price in silver took place in the 1980s under the price manipulation of the Hunt Brothers. At that time, silver prices could have been faring reasonably well in tandem with gold as fundamentals like inflation and political tensions affected commodities priced in US dollars. However, the exponentially high silver spike above $50 had some help from the Hunt’s cornering the market. Once the chase had ended, the Hunts were bankrupt and many speculators suffered huge losses.

Finding a high mark in silver prices absent of manipulation, it would seem natural to take a look at the prices in 2008, when gold and other commodities were logging price peaks. In March of that year, silver prices topped $20 an ounce. This level was only recently breached again. Unfortunately, this new high comes as more accusations of manipulation come into play. CFTC commissioner Bart Chilton recently issued a statement that suggests they are looking into the potential that there were attempts to influence silver prices.

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

 

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The Metals Review for The Week of November 8th, 2010

To prepare for our new trading week, as usual, we will check out the Pitguru Daniel Cronin's analysis to see what will be going on in the metal market this week.

The Metals Review
For the week of November 8th, 2010​

Precious metals rallied significantly last week after the Fed’s announcement to buy back $600 billion in US treasuries as Gold has rallied to the $1,395 mark again but failed to break the $1,400 level for the second time. Silver opened up higher on the Sunday night session to $27.00 but has since fallen back as well on new Irish debt concerns that are hurting the Euro. With these new debt concerns and the Euro/USD under $1.40 again it looks like it may be time to ring the register on the Gold market ahead of the $1,400 level.

Copper has also rallied to new heights this year as last week the base metal climbed to $3.9940 just ahead of the key $4.00 level. This market now called a bit weaker to start the trading week and I think that traders need to play the key levels here with $4.00 being great resistance. If the Euro/USD gets back to $1.35 then I believe you will see Copper fall back to $3.70 but for now this market has been very strong so look for a breakout to once again occur above $4.00 if that level is obtained.

An usual advice, don't miss other futures reviews for your trading!

***Chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.

 

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Gold Market : Standard Debate

Just be back with the changeable market: Gold! You must be busy to keep up with the changes. Just some minutes, stop by to discuss and learn some information on Gold market with The Bullion Report! The topic today is:

Standard Debate​

News reports for gold found extra fodder this week as the World Bank chief alluded to the potential for a return to the gold standard. Always a hot topic for debate among economists, the gold standard talk has been eagerly revived lately. The Fed’s latest move in quantitative easing and the reaction on the global scene has not been kind to the US dollar. Now is as good a time as any to examine what all the fuss is about.

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

The idea of a gold standard is pretty straightforward. It implies that the monetary system is fixed to a specific amount of gold. In the past, this meant that many national currencies which participated in the gold standard had notes which could be converted into gold. This was accomplished via agreements from those nations to fix their money to a set amount of gold. This kind of monetary system wasn’t limited to gold. The US had a bimetallic standard for a while under which there was a fixed amount of gold and silver linked to the dollar. Officially, the US was on a gold standard at the start of the 20th century, after passage of the Gold Standard Act. In 1946, Bretton-Woods changed things, and established a system of fixed exchange rates. Nowadays, almost every country is on a fiat money system and no major currency has a gold standard.

So what is the big deal? Advocates for a return to a gold standard suggest that the basic nature of gold is best for a money system. They feel that commodity money prevents distortions. A currency on a gold standard is supported by a specific weight of gold. Gold is a tangible item, not just paper. Therefore, in order to create more money, a central bank would have to have additional gold. This could serve to prevent a bank from changing policies and issuing additional paper money with no intrinsic value. They see International exchange as difficult with floating exchange rates. How can someone smoothly conduct international trade when the prices change so frequently in volatile times?

The other side of the equation suggests that a gold standard is not that easy in reality. To the people who think it is a ridiculous idea, the flow of gold between nations wasn’t able to offer the balance of payments people had hoped for. It didn’t prevent financial disasters before, why would it now? Gold prices are seen as extremely volatile, making the price point for a gold peg difficult. The lure of gold has historically led to a “cashing in” of currencies for gold when the gold price gains enough ground. Issues about inflation, interest rates, and the feasibility of economic stimulation under a gold standard all come under the microscope.

It is easy to see why Robert Zoellick, president of the World Bank, sparked such interest this week. Sure, the US and the Fed have also come under fire ahead of and during the G20 summit. China and Germany specifically had affiliated persons who actively spoke out against the devaluation of the dollar under this latest round of easing. It seems only natural then, that people would read into Zoellick’s comments. In reality, the World Bank president was suggesting other ways that the international economic system could work. His thoughts on gold read more like a footnote in a comprehensive list to a “package approach” for G20 countries to open up growth and reform and cooperation. Somewhere towards the end of his list, he offers a vague suggestion that gold be a part of a monetary system for this package. It wasn’t exactly a vehicle for a beginning movement towards a gold standard revival.

 

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The Metals Review for The Week of November 15th, 2010

Be back with Pitguru Daniel Cronin's metal market analysis to see how Gold, silver, copper or other precious metals will be working this week!

The Metals Review
For the week of November 15th, 2010​

Precious metals, like all other commodities, were having a great week as Gold raced to $1,420 and Silver almost eclipsed $30 but word got out Friday that the European debt crisis still loomed large. Ireland now in trouble of defaulting which sent the Euro on a tailspin and the metals markets to collapse as Gold lost more than $45 Friday to trade out to $1,360. Word is out that China may increase its benchmark one-year lending rate to 5.81 percent by the end of the year from 5.56 percent, and the deposit rate may climb to 2.75 percent from 2.5 percent. Inflation in China topped a two-year high last month. Gold could be in for a bit of a dead-cat-bounce this week as prices may try and rise back to $1,380 but one must be wary of the recent price decline. Look for an opportunity to sell around $1,400 as I feel this market looks to head to the downside for a bit now.

Copper also had a great week topping $4.08 on the COMEX before this market also saw heavy liquidation as prices went from $4.05 to $3.90 in a blink of an eye on the Thursday session. I believe prices may have further to go and $3.83 looks like a reasonable number for this base metal to drop to. Have an eye out for the USD because this market has really had some good momentum the last few weeks. A strong USD will only help the chances of Copper getting to low $3.80 numbers.

To keep up with the daily changes, check out the daily precious metal reports for more information and decide your investment!

 

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The Gold-Silver Ratio Discussion

Traders, investors and anyone who cares about metal markets will interest in the discussion about "The Gold-Silver Ratio" with The Bullion Report. Join and learn for your investment!

The Gold-Silver Ratio​

The gold-silver ratio is among the many tools and topics that investors take a hard look at when it comes to precious metals. There are several moments in time that the ratio was made a permanent force by government decree. Even in modern trading, the ratio has a home in certain trading strategies. With both markets playing with record highs, it is worth explaining and exploring the ratio between these two markets.

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

The gold-silver ratio is pretty straightforward math – to determine the ratio, look at how many ounces of silver it takes to buy a single ounce of gold. If gold were trading around $1,000 an ounce and silver around $20 an ounce, the ratio would be 1,000 over 20 or 50:1. The result is that a higher ratio is seen as a signal for cheaper silver versus gold and a high ratio signals more expensive silver. Older references regarding the mining resources for silver suggest that there is roughly 16 times more silver to be mined than gold, which sets up the older ratio valuations from countries like France, the US, and Great Britain. Today, the values for both metals are obviously constantly changing, but adherents to trade strategies based on this ratio look at historical references for potential trading opportunities.

Coinage acts in the United States during the 18th and 19th centuries placed the gold-silver ratio in the neighborhood of 1:15 or 1:16. When the bimetal standard was dropped, this shifted and the ratio has drifted high and low in subsequent generations. Events like the Great Depression, the implementation of Bretton-Woods, post-war prosperity, dropping of the gold standard, the Hunt Brother’s manipulation, and other price extremes in precious metals have been cited as significant shifts in the ratio.

Trading strategies based on the gold-silver ratio look at these previous ratio levels as possibilities for extremes which might present opportunities. Basically, if it takes fifty ounces of silver to buy one ounce of gold at one point, an investor who thinks the ratio may expand would look to sell or be short silver-related assets. There is still a substantial level of risk in the trade, and it would be based on the ability to correctly identify an opportunity in the ratio and the potential for a future shift. Trading the ratio can be done through various investment outlets. Some bullion bugs trading the ratio may do so without regard to the actual prices. In the same example, if an investor believed the ratio would expand from 50:1, they could convert 50 ounces of silver to one ounce of gold. If the silver price dropped and the ratio grew to 100:1, the same investor could convert that ounce of gold to 100 ounces of silver.

Using an average price for each precious metal, a chart of the gold-silver ratio over time might look a little like this:

To ratio traders, the suggestion of this chart is that extremes run the gamut from around 16:1 to nearly 100:1. The last decade has frequently produced numbers around 50:1 or 60:1. Therefore, any divergence from this could be viewed as a potential trade.

 

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The Metals Review for The Week of November 22nd, 2010

As usual, check out the weekly metal market review analyzed by Pitguru Daniel Cronin to see how Gold, Silver and Cooper will be going to trad!

The Metals Review
For the week of November 22nd, 2010​

Precious metals hovered around unchanged after the big sell off from $1,430 to $1,325 in the Gold market as traders and investors took this opportunity to buy on the dip here as Gold closed around $1,355 per ounce. Even as the USD gained against the Euro with the Ireland debt issue, Gold stayed strong to the support at $1,320 and did not flush below this level. Silver has also stayed above the significant $23 level as prices hover around $26. I would look to try and get Gold on the cheap this week somewhere near the $1,320 level as I fell prices have much more of an upside than down on this market. Many banks and funds have lifted their Gold predictions and some go as far as $1,650 “by next year as the Federal Reserve pledged this month to spend an extra $600 billion buying Treasuries, adding to trillions of dollars injected by central banks worldwide to inflate their economies out of the worst global recession since World War II.” Gold should be consolidating a bit here after the drop.

Copper has had some wild swings as the Dec/Mar spread has continued to baffle many funds and traders alike with its unpredictability. The same goes for flatprice as well as Dec copper is back hovering in the middle of the range at $3.80, as $4.05 and $3.60 has been the high and low of this move the last 3 months. Look for an opportunity to sell Copper in the upper $3.80 area as prices will not be supported by a weakening equity market as the S&P is now below 1200.

Keep up with the daily change in precious metal prices to plan your investment!

 

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Gold Market Talk: Holiday Glitz

Happy Thanksgiving!!! I hope that you guys will have a great time with family and friends. For this special week, let's see is there anything special in Gold market! Now, we will have a discussion with The Bullion Report

Holiday Glitz​

The western world is marching towards one of the biggest gift giving seasons while India wraps up its festival season. These twin pillars of potential bullion demand can give investors a strong indication as to the sentiment towards higher gold and silver prices. Ahead of that pinnacle of retail excess, Black Friday, let’s take a look at how holidays may impact the fourth quarter for precious metals.

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

Demand in the Third Quarter of 2010

According to the latest World Gold Council release, the outlook for gold demand through the end of the year will remain strong. They attribute at least part of this forecast to the same feature analysts have been looking at for the last few years – demand from India and China. In previous reports, this strong growth in Asia was noted as a significant contributing factor. The growing middle class has built up enough of an income to be able to look at bigger ticket items. They appeared to be eager to flaunt their disposable income, fueling greater consumption on jewelry and investment fronts. India’s conspicuous demand during religious festivals and the so-called wedding season always features highlights that bullion investors look for.

In a nutshell, there are key festivals in India, such as Diwali, when celebrants purchase gold and silver, often as gifts. Weddings in India are also high points for gold jewelry purchases. Just like in the United States, there is a particular “season” for tying the knot in India. It isn’t unusual for a bride’s social status to be measured in the kilograms of gold she wears on her special day. A global recession and high metal prices might not have deterred families from their purchases. Instead, other luxury gifts for the couple could have been cut in favor of buying gold. (1)

Demand and import numbers can be tell-tale signals. Gold importers in India will often offer up sound bites for news stories when prices are so high that they might trigger a slowdown in jewelry purchases. However, calling a top in precious metals prices the last several months has proven difficult. The latest news stories suggest that demand during the marriage season has been strong. Gold and silver purchases have allegedly seen “heavy buying” even through this latest round of firm higher prices. (2)

In the western world, this week marks the official kick-off of the holiday shopping season. The impact this might have on precious metals markets may be two-fold. First, the signal that the markets will probably look for is the force of consumer demand for retail goods of all kinds. The continuing issues in the housing and employment markets might dampen some of the enthusiasm for shopping. However, it is probable that the year-on-year interest in holiday giving will have picked up as consumers adjust to the economic situation. Uncertainty and fear were likely strong backbones for the lack of spending seen in recent years. At this point, everyone knows recovery will be slow in coming, so the average consumer could be feeling better prepared and holding on less fiercely to their savings.

Second, there has been continued interest in bullion investments, including physical sales. According to the World Gold Council, physical bar hoarding is among the growing legs of investment demand for precious metals. Silver bullion in the form of American Eagle coins has seen another record year for sales. Sales from the US Mint have gained 223 percent in the last five years. Recent statements from various mints point to gains in demand. The Royal Canadian Mint saw a 50 percent gain in silver bullion coin sales. Australia’s Perth Mint is also seeing upside to the sales of silver. This kind of interest on the demand side doesn’t seem to be ebbing with fresh highs.

 

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The Metals Review for The Week of November 29th, 2010

Hello friends! How are you? How about your holiday? I hope that it's great and your trading also. Time for relaxing ends up. Back to the metal market this week, let's see if there is anything new from the market analysis by Pitguru Daniel Cronin.

The Metals Review
For the week of November 29th, 2010​

Both gold and silver have been oddly trading above $1,355 and $26 respectively even as the market has seen a huge spike in the USD and sell off in the euro as a result of the Eurozone debt crisis. The same reaction has been seen in crude oil as the markets ignore these fundamental actions and still trade at a premium to the economic indicators. Gold had huge support at the $1,320 level which held a few weeks ago and has since bounced to consolidate at $1,355. My guess is that this metal will move higher to test $1,380 as it ignores the strength in the USD and reacts on technical analysis and sentiment to the buy side.

Copper has stayed the course here consolidating at the $3.65-$3.70 level to trade above this at $3.75 to start the week. Technical analysis was right on as the December contract traded down to $3.60 which was last resistance to ultimately trade higher on oversold conditions. I believe in picking up some of this base metal around the $3.70 to $3.65 area as I see prices heading back toward $3.90.

While waiting for the next weekly analysis, you can keep up with the market with the daily precious metals prices to plan for your trading.

 

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Why should conflicts affect gold prices?

Back to the metal market, especially Gold market this week, we will together with The Bullion Report get to know "Why should conflicts affect gold prices?"

War and Peace​

Precious metals are viewed as both currency and commodity, giving them a unique position on the global investment radar. Above many other tangible goods, they have a serious sensitivity to global events. Economic fears and inflation concerns can often light a fire under prices, but other global issues can also move prices. These issues include geopolitical tensions and conflicts. As certain countries flex their war muscles, let’s take a look at the potential impact on bullion.

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

In ancient times, gold or some other hard currency was needed to raise and maintain an army. The costs associated with armed men included armor, training, food, as well as the salaries that battle-ready men needed to motivate their spirits. The armed nations could gather this gold from taxes or from pilfering conquered lands. In ancient Rome, even Caesar’s men were paid with the golden spoils of war. Conflicts throughout the European expansion into the New World can be marked by the hunger for precious metals, specifically the Spanish quest for gold in Central America. The same idea persisted in this time: gold was needed to pay for armies and armadas and fund the expansion and exploration of a sovereign nation.

Trade and wars with Asia periodically drained the western world of silver. During and after the two World Wars, precious metals went on wild rides as currency changes, issues over the gold standard, and rampant inflation in some countries all skewed the fundamental picture. Geopolitical tensions in modern times from the Soviet war in Afghanistan to the invasion of Kuwait and the Gulf war have in some way or another precipitated a reaction in gold prices. Conflicts associated with the war on terror are harder to link to gold prices effects since many of the situations, like that in Afghanistan, are ongoing. However, the initial fallout from the attacks on US soil appears marked by increased buying of precious metals.

Why should conflicts affect gold prices?

Fear can be an extraordinary motivator of prices. Recent trading around economic uncertainty shows how strong that motivator can be. Conflicts and war can cause just as many jitters, so it would be logical to conclude that fear of war can move prices too. Although many people consider great wars a thing of the past, even smaller conflicts have the opportunity to destabilize a nation and the overall economic situation. Basically, the effect of an internal or external conflict can be two-fold.

Wars still cost money, just like they did in ancient Rome. Armies need to be sustained and this can be an incredible drain on the resources of the nation at war. A spending boost is a potential underlying cause of inflation. Large amounts of borrowing or huge deficits can be the outcomes of war spending. Gold and other precious metals are viewed as a hedge against inflation. Therefore, a nation at war can inspire additional investment hedge demand for bullion. Currency weakness can also come from concerns over the outcome of the conflict. Citizens may decide hoarding gold as a store of wealth is the best course of action when war appears on the horizon.

However, a rise in gold prices seen ahead of conflicts never seems guaranteed to sustain itself. In fact, there have been instances where gold lost significant value during wars. On a fundamental front, it may be argued that the threat of war or fear of tensions may build up investor interest in gold ahead of the actual event. A fantastic example of this kind of mentality actually played out in the Civil War Gold Hoax.

This hoax, according to the MuseumofHoaxes.com, was a publication of a false news story which said the Civil War was going to continue, contrary to widely held beliefs that Grant would soon be putting an end to things. The result - an initial purpose for the hoax – was to cause a spike in gold prices. The ruse worked, with shares on the New York Stock Exchange falling while gold values rose. The original perpetrator was sentenced for his deception, but the experiment appeared to prove his evaluation of investors was right: rumors of new or prolonged conflict can move prices.