According to David Levenstein, Tensions between Iran and USA, the Eurozone Crisis, and Robust Demand from China will Push the Price of Gold to New All-time Highs.
Author: David Levenstein
Posted: Tuesday , 17 Jan 2012
JOHANNESBURG – Recently there has been much talk about the possibility of a war with Iran. And, as one can expect the main stream media is involved in a deliberate process of distorting the facts, just as they were before the US invaded Iraq.
According to U.S. President George W. Bush and British Prime Minister Tony Blair, the reasons for the invading Iraq were “to disarm Iraq of weapons of mass destruction, to end Saddam Hussein’s alleged support for terrorism and to free the Iraqi people.”
The 2003 invasion of Iraq was the start of the conflict known as the Iraq War or Operation Iraqi Freedom, in which a combined force of troops from the United States, the United Kingdom, Australia and Poland invaded Iraq.
In 2005, the CIA released a report saying that no weapons of mass destruction had been found in Iraq, yet the war continued for another six years. And, if the US government are so concerned about the freedom and welfare of people in other nations, how come they have never invaded Zimbabwe? After all, the people there have suffered tremendous financial and economic hardship under the rule of a mentally unstable despot. Oh I get it, Zimbabwe has no oil. Suddenly it’s all beginning to make sense.
Iran has 10% of global oil and gas reserves, more than five times those of the United States of America. The conquest of Iran’s oil riches is the driving force behind America’s military agenda. Iran represents a serious threat to the supplies of oil to the USA and any disruption to supplies from this region could have a detrimental effect on the US economy and the value of the dollar. And, as this is an election year this is the last thing the Obama administration need. In the meantime the media will brainwash the average individual into believing that war with Iran is a worthy and necessary cause since the US will be simply going after the “bad guys.”
If such an event happens, I believe the consequences will be worse than envisaged. Iran is a country of approximately 80 million people. It constitutes a major and significant regional military and economic power.
Any invasion of Iran could escalate into a regional war extending from the Mediterranean to the Chinese border. Recently, the Russian government, warned the US and NATO that “should Iran get drawn into any political or military hardships, this will be a direct threat to our national security.” What this signifies is that Russia is Iran’s military ally and that Russia will act militarily if Iran is attacked.
Some market observers say that war with Iran has already begun. A key amendment to the National Defence Authorization Act signed by United States President Barack Obama on the last day of 2011 imposes sanctions on any countries or companies that buy Iranian oil and pay for it through Iran’s central bank. Starting this summer, anybody who does it is prevented from doing business with the US.
In a recent interview on King World News, Jim Rickards said that he believes that, “The fact that we, meaning the United States, are on a path to a war with Iran is very clear at this point. It does seem the countdown has begun and it’s coming to a head sooner rather than later.”
So this war is already being fought. The other day the United States sanctioned the Central Bank of Iran. By the way, we’ve been sanctioning them for years, but we’ve been dialling it up little by little. It’s like the frog that’s boiled in a pot of water and doesn’t know until it’s too late that the water is getting hot.
President Obama sanctioned the central bank about a week ago. The Iranian currency, the rial, dropped 30% in a single day. Hyperinflation has broken out in Iran. This is financial warfare.”
It is my belief that a full-out military confrontation with Iran will be another catalyst to push the price of gold to a new record high. But, even if a military invasion of Iran is avoided, there are other catalysts in the market that could easily propel the price of gold to new record highs, in particular the Eurozone debt crisis and the escalating demand for physical gold from China.
On Friday, January 13, Standard & Poor’s downgraded the credit ratings of nine euro zone countries. S&P lowered its long-term rating on Cyprus, Italy, Portugal and Spain by two notches, and cut its rating on Austria, France, Malta, Slovakia and Slovenia by one notch.
The move puts highly indebted Italy on the same BBB+ level as Kazakhstan and pushes Portugal into junk status.
The credit-rating agency put all 14 Eurozone nations – Austria, Belgium, Cyprus, Estonia, Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain – on “negative” outlook for a possible further downgrade.
Germany was the only country to emerge totally unscathed with its triple-A rating and a stable outlook.
“Today’s ratings actions are primarily driven by our assessment that the policy initiatives that have been taken by European policy makers in recent weeks may be insufficient to fully address on-going systemic stresses in the euro zone,” S&P said in a press release announcing the downgrade.
While banks and financial institutions bail out of the euro and plough back into the US dollar, prudent investors will turn to gold instead. So, while the euro weakens against the dollar, gold may be seeing some short-term pressure, but this will not last long as investors lose more confidence in the major fiat currencies.
As we have seen over the last few years, not only are central bankers especially those of Western countries attempting to suppress the price of gold they are also intervening in the currency, bond, equity and commodity markets. While they attempt to keep the price of gold low, the Chinese and Indians are using this opportunity to accumulate more of the physical metal.
Chinese gold imports from Hong Kong — which in past years have accounted for about half of the country’s total imports — have soared to unprecedented levels.
China’s imports from Hong Kong surged to 102. 8 tons in October. This is a 20% increase and a 483% increase year-on-year. In October and November, China imported 189 tons of the precious metal from Hong Kong. Add to that China’s domestic production, which runs at a rate of about 90 tons a quarter, and even without including any buying in December or any imports from sources other than Hong Kong, Chinese demand in Q4 would stand at a minimum of 279 tons. Total imports for the whole of 2009 were only 45 tons.
As of June 30, 2009 the Chinese central bank holdings of gold stood at 1054 tons. While they have not announced an increase to these holdings I am sure that the current holdings are lot more than this.
As I have stated in many of my reports, the only solution for the Eurozone crisis will be for the ECB to print huge amounts of money, or for a complete new restructuring of the membership participation which will exclude the more troubled nations that will ultimately have to default. But, no matter what the financial leaders and their political counterparts conjure up, their policies of expanding bank credit and low interest rates will simply cause more instability in the financial markets, a preview of which we have seen in the last year. Daily swings of several hundred pips will become more frequent with the majors and thus we can expect to see this play out in the gold market in the form of more volatile and larger price swings on a more frequent basis.
So with a potential war with Iran looming, a worsening of the Eurozone debt crisis and an escalation for physical gold, I simply cannot see lower prices for the yellow metal.
Analysts, as well as traders are keeping a close eye on the break through the 200 day MA. If gold continues to trade above this line traders’ sentiment will become more bullish. I believe we will soon see a test of a level of resistance set at around $1680 per ounce.
David Levenstein began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.