Please excuse me while I step back onto my soapbox to explain why anyone should own gold. In short, we own gold as insurance against the inevitable depreciation of fiat currencies — a cycle that has repeated over and over again in every civilization existing in human history. That’s it. Nothing else, writes Brien Lundin, executive editor of Gold Newsletter.
To be more specific, geopolitical events are not a reason to buy gold, since they don’t impact the purchasing power of currencies (except perhaps for those directly affected). As I’ve told numerous audiences, when the bullets are flying the only metals you should be buying are copper-jacketed lead.
The reason why gold has typically risen at the advent of hostilities is due to the bets being placed by speculators eager to sell to others at higher prices. This pattern has repeated so much over the years that gold has gained a reputation as a hedge against geopolitical events and uncertainty in general.
Pundits forget that, in virtually every instance, the price of gold has quickly fallen right back down once peace breaks out or the speculators are ready to hand the bag to late comers. But once again, we had bewildered analysts openly wondering what happened to gold’s “safe haven” status during this conflict with Iran.
I think gold got sold off for liquidity. As I’ve also often said, the metal represents the golden piggy bank that gets broken into when investors need emergency cash. So, when margin calls started ringing, they sold gold. That selling was concentrated more in the paper gold ETFs.
Bottom line: This was a liquidity event completely unrelated to the long-term factors that have been driving gold, and with it silver and mining equities.
