Syria, Chemical Weapons and Gold are All Linked

U.S. equities have been under pressure this week, ever since Secretary of State John Kerry said Monday afternoon that Syria had, in fact, used chemical weapons against its own people . Since that statement, concerns over a U.S. military response has weighed on global equities . While the dollar has remained steady, gold has risen to a three-month high, and this added level of global destabilization will likely prove bullish for the precious metal. While a breather and intermediate reversal should not come as a surprise, military action is expected in the next several days , which could serve as a further catalyst to drive the price of gold even higher.

The Syrian issue
While White House Press Secretary Jim Carney is still using the word 'alleged' in reference to the use of chemical weapons , Vice President Joe Biden has stated that there is "no doubt" that this type of weapons were used . The VP further stated that the actions of the Syrian government, which reportedly killed more than 300 people, must be held accountable . President Obama is taking the least aggressive stance, but the belief remains that some military response is imminent .

Also impacting the matter is the question of whether the White House would seek the permission of either Congress or the U.N. before ordering a strike . While such clearances seem unlikely – although Congress seems to be favoring it and it is general believed that both China and Russia would be opposed to action against Syria within the U.N.  – they have not been ruled out. Also of note is the fact that President Obama is set to attend a G-20 economic summit in Sweden and Russia next week – both of which strongly support Assad's government . The mere existence of the question adds tension to the situation, which is exactly the kind of uncertainty that favors a bullish stance on gold.

Why gold?
In the most general terms, global unrest favors gold as a safe haven store of wealth. Gold, as represented by the SPDR Gold Trust (NYSEMKT: GLD  ) , has traded higher since the story broke. The yellow commodity has been trending higher recently, largely on demand strength out of both India and China . The World Gold Council estimates that each country could see record demand levels surpassing 1,000 tonnes each . This demand has been countering the bearish pressure that Fed tapering would be expected to have on gold, allowing the commodity to rise.

GLD Chart

GLD data by YCharts

Gold miners, including Goldcorp (NYSE: GG  ) and Barrick Gold (NYSE: ABX  ) traded higher on the news, but largely gave back gains going into Tuesday's close. Miners, particularly in the U.S., are more heavily affected by some of the global macroeconomic events at play – namely Fed action – than the commodity itself. As the U.S. dollar has remained strong, this has somewhat muted the good news on the rising price of gold for these companies' U.S. profits. The miners have a leveraged exposure to gold prices, however, so Syria-driven spikes may move their stock prices more substantially.

A U.S. attack, which some fear could inflame the region and introduce added uncertainty to the global landscape, has the potential to serve as another catalyst higher for both gold and the gold miners. While most of the world is focused on the impact of the Syria issue on oil prices, you should not overlook the impact that it has on precious metals. While the incident, and therefore its impact, may be short-lived, it has the potential to drive prices and should be monitored carefully.


 

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  • Report this Comment On August 29, 2013, at 8:32 AM, pmagu wrote:

    interesting but I wish you would focus on the relationship or lack thereof the gold and the gold miners. we all know that miners can lock in higher profits with hedges on the loftier gold prices. could it be the miners are discounting the pending Syrian attack?

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