The economy is very much influenced by the events going on in the world. The Brexit vote, for example, caused both the pound and the euro to weaken considerably, and the dollar to grow stronger by comparison. The announcement of a federal interest rate hike is nearly always met with a decline in the stock market. Everywhere you look, current events have an impact on economic factors around the globe.
So with that in mind, what are the geopolitical factors that are contributing to the current rise in gold prices?
Syria and North Korea
One of the most significant events in the news recently has been Donald Trump’s missile strike against Syria. When Syrian President Bashar al-Assad allegedly bombed his own people with dangerous and illegal chemical weapons, President Trump retaliated by launching 59 Tomahawk cruise missiles against the airfield from which the attack originated.
Not long afterwards, Vice President Pence stated publicly that the previous administration’s policy of “strategic patience” towards Syria, North Korea, and other countries that could pose a threat to our nation, was now over. In particular, he warned that North Korea should not test President Trump’s resolve by continuing their illegal testing of missiles and nuclear weapons.
Needless to say, tensions between the U.S. and both Syria and North Korea, as well as their respective allies, Russia and China, have been running high for the last couple of weeks. However, over that same amount of time, the gold spot price has spiked significantly, rising from $1,252.48 per ounce the day before the attacks, to $1,266.62 immediately after the news broke, and continuing to rise.
The Effect on Gold
There are several reasons for this sudden spike. As previously mentioned, one of North Korea’s allies is China, with whom the U.S. does significant business. What they plan to do in this situation remains to be seen, but even now, there’s fear that their actions will have a negative impact on the markets.
As a result, people are looking for a safe haven to protect themselves in case of market downturn. And gold has always been one of the best, most secure safe havens there is. It’s not subject to inflation or market volatility, but retains its value over time. Therefore, if you have a portion of your money in gold, even if you lose your investment in the stock market, you still have something to fall back on, and protect your nest egg.
Other Geopolitical Factors
Our relations with Syria and North Korea aren’t the only geopolitical factor in play in the economy right now, and the markets aren’t the only thing being affected. For example, President Trump recently remarked that the U.S. dollar is too strong, which makes it difficult to compete financially with other countries who are devaluing their currency.
In response to his remarks, the dollar’s value dropped immediately, hitting a five-month low against the yen. This drop further cemented investors’ need for a safe haven, thus driving gold up even more.
Finally, there’s another, more practical reason for gold’s recent surge. Demand for gold has been increasing in both India and China—two of the biggest gold importers in the world. Unlike the other factors we’ve talked about, which were immediate reactions to specific events, this has been going on steadily for several months. Demonetization in India late last year had led to a decrease in imports, but the effects seem to be waning, the rupee’s value is going up, and the demand for gold is back on the rise.
Meanwhile, China’s demand for gold is increasing so much that some worry it can’t be met. When demand exceeds supply, that only serves to drive the price up further.
All of these are significant factors contributing to the rise of gold in recent weeks. Furthermore, they seem to indicate the continued rise of gold in the foreseeable future. Tensions with Syria and North Korea are likely to remain high as a result of Trump’s current policies. As a result, demand for gold is likely to continue rising in India and China, particularly as India’s wedding season arrives later this year, as gold is a traditional gift.
That makes now the perfect time to invest in a Gold IRA, while the price is still relatively low. Especially in the current geopolitical climate, it’s important to have a safe haven. Is your nest egg protected?