2019 has been a tough year for the global economy. At first, growth prospects were overshadowed by the increased trade tensions between the United States and China. Then, market participants saw another leading indicator - the inverted yield curve between the US short and long-term bonds and became concerned about an upcoming financial crisis.
As 2020 began, their market anxiety over global economic growth hadn’t abated. Moreover, from the first days of January, the United States found itself the key player in yet another unpleasant story, which became another reason for panic moods in the market. We are talking about the escalation of geopolitical tensions in the Middle East.
On December 3, Qassem Soleimani, an Iranian Major General in the Islamic Revolutionary Guard Corps, was killed as a result of the drone strike near Baghdad airport. Abu Mahdi al-Muhandis, an important Shia leader in the post-Saddam era, the key militia figure and a close Soleimani associate, was also killed in this attack. Following the airstrike and Soleimani death, Iran’s Supreme Leader Ayatollah Ali Khamenei vowed harsh revenge, in response to which US President Donald Trump threatened to strike more Iranian targets if Tehran takes retaliatory measures. Unfortunately, the conflict between the countries escalated from verbal skirmishes to real action. The Islamic Republic of Iran responded to US aggression, launching 15 ballistic missiles at the US military forces based in Iraq. The likelihood of an open military conflict between Tehran and Washington has already boosted the entire category of safe-haven assets: US treasuries, Franc, Yen and Gold.
The most interesting among these assets was gold. On January 1, gold was selling at $ 1,520 per troy ounce, but after the explosions in the Middle East quotes skyrocketed above $ 1,600, the highest level since 2013. In just a few days, gold went up by more than 5%. Such a tremendous interest in the asset is the best presentation of its safe-haven properties. If we go back in time, we’ll see that gold has always been used as the hedge against systemic financial risks, the best safe haven, as well as one of the most reliable assets at times of panic in the financial markets. Why is gold so popular? The thing is that gold is an essential element of the global financial system since this metal is not subject to corrosion, has many applications in various areas, and its reserves are limited. Gold is such a rare metal that globally, every hour more steel is cast at steel mills as opposed to mined gold of all time.
Gold hasn’t practically been lost in the process of historical cataclysms but was only accumulated and remelted. Currently, total central bank gold reserves are estimated at 32 thousand tons (if you melt all this gold together, you will get a cube with a side of only about 12 m). The main advantage of gold is its generally recognized value, which has not been questioned since the beginning of civilization.
The situation in the Middle East once again reminded investors that gold is interesting because it allows them to “sit out” global economic uncertainty, but also from the point of view of short-term speculative benefits. Given that 2020 is fraught with political uncertainty and economic risks, we recommend investing in gold. The continuation of the US-China trade war, remaining uncertainty over Brexit, German recession, the Middle East conflict, the Fed’s soft monetary policy, Iran’s withdrawal from the nuclear deal, the potential global economic crisis and US elections - any of these fundamental reasons can trigger a bullish rally in XAU/USD, driving gold up to 2012 highs at $ 1800. In other words, we are talking about a potential 20% profit this year. We strongly advise you to consider this excellent earning opportunity.