A new day has dawned with a president-elect who promises wholesale changes in the way the nation manages its economy and its international affairs. What does this mean for those of us who hold gold or want to add gold to our portfolios?
To answer that question, we review the forces that have driven the historic gold rally of the past 13 months.
Then we explain our anticipation of how those forces might change in the future and whether those changes are likely to support gold’s rally or undermine it.
War and fear of war have been prime movers in gold prices from time immemorial. Our current rally began on October 8, 2023, following the surprise attack on Israel by Hamas. Since then, the rally has been fueled by the spread of conflict across five Middle Eastern countries, intensifying combat in Ukraine and Russia, and China’s increasing military assertiveness in the South China Sea. The U.S. is deeply involved in all three theaters.
Can we expect these conflicts to unwind over the next four years, thereby reducing geopolitics as a driver of gold prices?
No, this is not likely for several reasons. A look at these three regional conflicts shows why.
China poses the gravest long-term strategic threat to the United States. Chinese President Xi has told his military to be prepared to annex Taiwan, by force if necessary, by 2027. U.S. intelligence currently assesses that Xi is likely to pursue that ambition by 2030. The U.S. is committed to preserving Taiwan’s independence, even if it requires the use of military force.
America and its Asian allies are arming and pursuing a containment strategy reminiscent of how the West countered the Soviet Union during the Cold War. China is testing the West’s strategy by flexing its muscles in the East and South China Seas. Xi is certain to intensify this assertiveness through the second Trump administration.
The Middle East conflict has momentum that seems impossible to break until Israel has eliminated threats from Gaza, the West Bank, and Lebanon. Many view this as an unachievable goal since Israel will be left to manage an embittered, traumatized, prostrate Palestinian population. But even if Israel succeeds, it faces the challenge of a soon-to-be nuclear-armed Iran, newly aligned with Putin’s Russia.
So far, The U.S. has managed to prevent the conflict from becoming a region-wide war, but we’re certainly drifting in that direction. The Trump administration may try to broker an agreement between Israel and the Arab states to reduce heat in the region, but the Middle East is unlikely to lose its title as the world’s powder keg.
As for Ukraine, president-elect Trump has promised to end the conflict with Russia quickly, so we might look for hostilities to wind down over the next year. On the other hand, governments across Europe view Putin’s ambitions as a threat to the entire continent. Whether or not the U.S. continues to support Kiev in some fashion, we should expect the Europeans to continue to do so. Europeans have a long history of living in the shadow of Russian Imperialism.
Any “peace settlement” forced upon Ukraine will simply set up Putin to use military and subversive means to gradually build on his territorial gains.
Ukraine has a 370-year history of experiencing war atrocities and devastation at the hands of the Russians. That memory will sustain their resistance for years to come.
These conflicts can be interconnected.
Just as Chinese President Xi is committed to “reintegrating” Taiwan into the People’s Republic of China, Vladimir Putin is committed to restoring his nation’s borders to those of the pre-1917 Russian empire. This would require the annexation of parts of 10 European nations besides Ukraine.
The emerging alliance among Russia, Iran, North Korea, and China poses the risk of generalized warfare across Europe, the Middle East, and East Asia.
So no, the world is unlikely to feel safer in the near future. Wise buyers will continue to seek the safe haven gold affords. Smart consumers will see price corrections as a buying opportunity. Be prepared.
In my next post, I’ll discuss the other forces behind this historic gold rally: falling interest rates, central bank buying, and safe-haven buying in China.
