Gold Investments Market Update – Inauguration of Obama – Hope Amidst Monumental Geopolitical and Macroeconomic Challenges

Gold rallied on the open in Asia to over $845/oz overnight before falling on a stronger dollar, then rising again in early morning trade in Europe before falling again to $838/oz, some $3/oz below its close on Friday. Gold fell 1.5% last week but surged 4% on Friday alone (silver was down 0.5% for the week but surged over 7% on Friday). As has been the pattern in recent years, stock markets fell by far more than gold and silver last week with the S&P 500 down 4.5%. The FTSE 100 was down 6.8pc – its worst week since November. Barak Obama’s inauguration as US President is a historic and hopeful day for America and the world and stock markets have opened on an optimistic note. The new President faces monumental challenges and the poisoned chalice of a very uncertain global geopolitical situation and the worst financial and economic crisis since the Great Depression. While all right minded people wish him well and hope that he can succeed in confronting and overwhelming these challenges – it is important as ever to remain realistic. Bailouts are now heading into the trillion mark and the quasi nationalisation of the western banking system continues. Central banks internationally are engaged in an unprecedented monetary experiment involving zero percent interest rates, quantitative easing and money printing on a gigantic scale. The Federal Reserve is most active in this process and therefore the dollar may come under pressure this week after the ECB interest rate reduction last week, which saw the euro under pressure and the dollar rise. Also trillion dollar budget deficits and surging budget deficits in many other countries will likely see nearly all currencies come under pressure in the coming months. Besides the obvious huge macroeconomic challenges and the increasing risk of a depression and financial and economic collapse, there are also real geopolitical challenges. On the geopolitical front, there are significant risks in the Middle East (particularly after the Israeli invasion of Gaza), with Iran, in Afghanistan and the risk of a war between Pakistan and India. Resource nationalism remains strong in Venezuela and Russia, either of which may test the new President. Colin Powell, Madeline Albright, Joseph Lieberman and Vice President elect Joe Biden have all warned of the possibility of an geopolitical event confronting Obama in his early days in the oval office. Biden said that he “guarantees” there will be an “international crisis” within the first 6 months of an Obama presidency. “Mark my words . . . I promise you it will occur. As a student of history and having served with seven presidents, I guarantee you it is going to happen.” Biden added. “Remember I said it standing here if you don’t remember anything else I said. Watch, we’re gonna have an international crisis, a generated crisis, to test the mettle of this guy.” Colin Powell was even more specific and said on ‘Meet the Press’ “there’s going to be a crisis which will come along on the 21st, 22nd of January that we don’t even know about right now”. Besides the obvious risk of another Pearl Harbour style attack on the US à la September 11th, there are also real risks of a military confrontation with Iran or a war between nuclear powered India and Pakistan ( with the US backing India). Let us hope that Obama can rise to these monumental challenges and put the world back on the path to sustainable economic growth and peaceful coexistence between peoples and nations.

Mark O'Byrne

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