Iran. What does it have to do with the price of Gold? Or more commonly, what does it have to do with us?
I have been following the possibility of Iran obtaining nuclear capabilities for literally years. There are two camps in the media and two schools of thought. One, quite simply, is that this is a good deal, a “peace for our time”. The other camp believes this deal tips the balance as the first step into World War III.
So, let’s look at a brief overview and then take that conclusion back to; the price of Gold, what we can do and what we can expect in the markets over the coming months or years, due to this deal.
It is no surprise that this is the top news story the world over yesterday and today. It is controversial and ground breaking in nature. Six developed nations – U.S.A., China, Russia, France, U.K. plus Germany – have made a deal with Iran to continue its nuclear weapons programme, while releasing billions of dollars in sanction funds into the Iranian economy. Some media, will say it is for peaceful purposes, not a nuclear weapons programme. The facts are that a nation does not need heavy water facilities for peaceful nuclear use. It is just a fact. Heavy water facilities are very efficient at re-processing plutonium. The other way to a nuclear bomb is enriching uranium. A nation does need not to enrich uranium for a civilian energy programme.
Why is this news? This may be stating the obvious to our readers, so forgive me. But Iran is the world’s number one sponsor of terrorism, something of which we are all becoming painfully more aware in recent weeks and months, even in Britain and on British people. On the day the deal was supposed to be announced, after its third delay, on Friday 10 July, Tehran was holding its annual Al-Quds Day. This is the annual day on which Iran celebrates the downfall of America, and Israel. The irony is sharp.
Although many central to left leaning media outlets touted the deal as a historic achievement, the more conservative leaning commentators called it a historic mistake.
“With key restrictions on Iran’s nuclear program required for only a decade, opponents of the deal say it simply delays Tehran’s pursuit of the bomb. Critics also say Iran will use new wealth from sanctions relief to double-down other destabilizing activities in the region. Iran stands to receive more than $100 billion in assets that have been frozen overseas and benefit from an end to various financial restrictions on Iranian banks. Iran could also sell more oil, bringing down crude prices. On Capitol Hill, Republicans accused Obama of making too many concessions. House Speaker John Boehner of Ohio said lawmakers “will fight a bad deal that is wrong for our national security and wrong for our country.” GOP presidential hopefuls also panned the deal, some vowing to scrap it if elected to succeed Obama.” (Yahoo News)
And we know from previous blogs, that anything that destabilizes both the markets and the confidence in the markets, affects the price of Gold and Silver.
The problem with this deal is it is built on trust, with a nation that has not acted in a trustworthy manner. That is putting it diplomatically. The closest example, although imperfect, is the nuclear deal Clinton made with North Korea in 1994. Once North Korea had its materials, it kicked out inspectors, broke the cameras and the seals. It is an imperfect comparison, because North Korea does not incite global terrorism against Western targets, even though it dislikes the West intensely.
I had the privilege of listening to a senior member of the Israeli government two months ago in a Jerusalem hotel. And he gave one of the main reasons, if Iran’s support and initiation of global terrorism is so obvious, that nations still seek a deal with Iran. It is “financial interests.”
“China is in talks to buy more Iranian oil and to help build a natural gas pipeline from Iran to Pakistan, and it has invited Iran to join its new infrastructure investment bank. Turkish President Recep Tayyip Erdogan swallowed recent criticism of Tehran to visit Tuesday, April 7, and discuss future investment and expanded business ties. Even European firms are angling for a piece of the action in an investment-starved, sanctions-battered, consumer-savvy country of nearly 80 million people. The stampede of suitors underscores the latent appetite for a country that has long been off-limits yet boasts some of the world’s largest reserves of oil and natural gas, in addition to a bustling and undeserved consumer market.” In fact, we highlighted the – little known at the time – fact that Iran was invited by China to join the new Asian Infrastructure and Investment Bank back in April 2015, in our blog entitled “China and Alan Greenspan – Something Big is Coming.”
The above article in ForeignPolicy.com is actually entitled “The Pot of Gold at the End of the Iranian Rainbow.” Yet the piece only focuses on black gold i.e.: oil. The real irony is that the actual pot of Gold is in Iran NOT keeping the deal, which is, historically, the much more likely outcome. That will lead to global turmoil and terrorism, the likes of which are hard to fathom. The affect on the price of Gold and Silver of Iran, for example, withholding oil and now knowing they have a nuclear weapon to back up their position, is tragically predictable.
Therefore, based on Iran’s behaviour, there is one moment in history that seems to be repeating itself with such predictability. And that is the moment when the then British Prime Minister Neville Chamberlain made a “deal” with Hitler in 1938. We know what happened next.
But keeping this focused, and respectfully leaving the human tragedy that followed to a place of memorial, with specific regard to Physical Gold, the trade and movement of this precious metal rocketed during the following years of 1939 to 1945. Plus, “During the war, as the need for gold became more pressing, these measures [to control the sale of Gold] became more draconian and were enforced both on German citizens and on individuals in the occupied states. Considerable amounts of gold were also taken from the inmates of concentration camps, dead and alive, including wedding rings, gold watches, spectacle-rims, jewelry, religious objects, and gold from dental work.” (Ref: page 8 and 22.)
All the echoes of that time are in the speeches of Iran. A deal has been made to appease it. But as Churchill famously said: “An appeaser is one who feeds a crocodile, hoping it will eat him last.”
No one can tell what will happen next, at least in detail. There may be far more pressing international events that affect the price of Gold. A collapse in the Euro? After all, the Greek “deal” this week is a whitewash and only delays the inevitable. Are China and Russia pushing for the new super-power position? Will there be war in the Middle East, or nearer to home? Will all or some of these events overlap each other in a tapestry, in which it is hard to tell which is feeding the other?
What we can say is we live in historic times. One thing we can do is invest in Physical Silver and Gold.
If you enjoy a good video over breakfast or your lunch break, take a look at this recent conversation between two of my favourites: Mike Maloney and Peter Schiff. When headlines scream in one direction, it’s always good to take a step back, look at the bigger picture and keep focused on the inevitable building themes.
If you haven’t taken the plunge and bought your own Physical Gold and Silver yet, we encourage you to give us a ring. No obligation, just to talk things through. We believe strongly in Gold and Silver financial education. We spend considerable lengths of time with individual customers, we have run seminars and visited clients homes for discreet financial discussions, where you are free to ask exactly what you need to ask.
For an introductory overview of the precious metals please take a few minutes to read our previous piece: “Precious Metals Overview.”
Finally, how are other investors responding to the news of the Iran Deal and what can we learn from them?
“Eugen Weinberg, commodity analyst at Commerzbank, explained that oil is expected to remain weak as supply continues to grow in the marketplace, which wouldn’t have any impact on gold prices. At the same time, the yellow metal is more focused on when the Federal Reserve is expected to raise interest rates. Bernard Dahdah, precious metals analyst at Natixis, agreed that oil is reacting to supply-side market dynamics; however, he also noted that the deal could weaken gold prices as it removes ongoing geopolitical tensions, reducing the need for gold as a safe-haven asset. George Gero, precious-metals strategist with RBC Capital Markets Global Futures, explained that the supply issue was the reason the initial drop in oil prices didn’t create another far-reaching selloff. “Last week, oil prices fell because investors were worried about weaker growth in China and the selloff in gold was margin related,” he said. “Investors and managers needed to sell their liquid investments to raise much needed cash.”
In a note released on Tuesday morning, analysts at USB said that although gold has been positively correlated with oil, the current level still remains close to zero. ”In spite of recent declines across the commodities space, that gold’s 20-day and 60-day rolling correlations with oil are currently near the lower end of the range suggests that any further pressure on oil is likely to have limited impact on gold prices,” (Kitco News)
So, on the one hand, if a release of extra oil affects a slight lowering of the price of Gold for a while, we recommend always to buy on the dips. That’s standard practice. But with the chances of Iran going nuclear rising by the week now, it is logical to assume that global turmoil, sadly, favours a rise in the safe haven metals of Gold and Silver. We don’t report that happily. But it is wise to see the facts and act accordingly.
In conclusion, the Iran Deal is historic. It reflects previous attempts to appease a terrorist regime. This may lead to a slight pause, a holding back, before global turmoil, and possibly war. All these factors point to a rise in both the price of Gold and Silver, financial turmoil in currencies and restrictions imposed on buying Physical at some point.
We wish you a good week and look forward to hearing from you, either via email at firstname.lastname@example.org or call 01769 618618.
Writer and Researcher,
Bleyer Bullion Team
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