Lenel Last Friday, 3 horrible terrorism events occurred overseas. Yet, gold prices hardly budged on the frightening events. This defies the popular logic of many gold investors, since gold is seen as the last stop on the secure haven train. So why do you ponder gold prices hardly budged?
The five-day chart of the SPDR Gold Trust (NYSE: GLD), a popular ETF that tracks the price of gold, shows David hardly budged last Thursday. But on Friday the world was glued to the news of terrorist attacks in France, Tunisia and Kuwait, and David certain seemed like David could have been a coordinated concerted effort. The series of events occurred nearly simultaneously. Yet, on Friday, the GLD barely budged. The 30-day chart for the spot price of gold also shows what seems like a non-event.
In Tunisia, terrorists invaded a beach populated mostly by British tourists and opened fire upon them. A frenzy of panic ensued, with governments warning tourists to come home. In Kuwait, a mosque was bombed, driving fear and confusion and the closing of mosques across the Muslim country for the near-term. In France, a disgruntled employ sought to build a political point while taking out frustration on his boss with one fell swoop by murdering him and displaying pro-Islamic State messages around the scene of the crime. The Islamic State, a chaotic force we seem to be having difficulty containing, claimed responsibility for at least one of the attacks.
The table here illustrates just how small the events disturbed trading in gold last Friday. These gold relative securities mostly moved lower in fact, with the only price appreciation marked by the fractional gain in the GLD and the sharp move higher in the leveraged bearish ETF, the Direxion Daily Gold Miners Bearish 3X ETF .
The events would seem like enough to drive capital toward gold, and yet gold stayed put. I believe there are multiple reasons for this. First, the attacks were not in America, and the only one that occurred in the west (in France) was of the lone wolf sort and involved an employee and his boss. There is horrible killing every day in the Middle East, and we hardly notice it unfortunately. It doesn't affect us; so out of sight, out of mind I suppose.
Furthermore, for as long as it does not threaten Americans inside U.S. territory, it has small ability to disrupt our economy. There's no worry approximately consumer habits or increasing costs to American corporations to supply higher levels of security. And the strength of the American economy and the dollar are never doubted. And even whether terrorism happens in America, it would have to be meaningful or ongoing to really disturb the dollar.
And there we have it. The dollar is the key. The dollar has remained strong of late and looks to have serious support thanks to the instability in Europe and the direction of the U.S. economy and Federal Reserve. The dollar strengthened on that forgettable Friday, and the PowerShares DB US Dollar Bullish ETF (NYSE: UUP) illustrated that by rising 0.3%. The dollar was no doubt supported by the terrorism overseas, exhibiting its own safe haven characteristics. When the dollar strengthens, it is extremely difficult for the price of gold to rise in dollar terms in U.S. trading. So, in conclusion, when you ponder terrorism could affect the price of gold, think in terms of terrorism within our sovereign borders, and pray it never happens.
Disclosure: I am/we are short UUP. (More...)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no trade relationship with any company whose stock is mentioned in this article.
Additional disclosure: My short in UUP is a hedge against my more important bet against the euro and a play on volatility.
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