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Gold Price Surges on Safe-Haven Flight

April 7th, 2017 by

Financial markets were troubled by news overnight of U.S. military response to the alleged use of chemical weapons by the Assad regime in Syria. Friday morning’s nonfarm payrolls also offered a disappointing picture of the American economy, further driving safe-haven buying of precious metals.

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After jumping above $1,270/oz at one point when markets opened this morning, spot gold traded a solid $14 per ounce higher (+1%) at $1,265/oz. This was still a five-month high for the yellow metal.

Spot silver also saw strong bids, gaining 10¢ an ounce to $18.35/oz. The platinum price added about the same amount (+0.5%) while palladium was flat. However, so far this year, palladium has been the world’s best-performing asset (#1). Silver ranks #3 year-to-date.

Tensions in Syria Intensify

Last night, President Trump announced that he had ordered a missile strike of infrastructure operated by the Syrian Army, who until now has fought in tacit cooperation with American forces against ISIS. The U.S. bombarded the site of a poison gas attack believed to be carried out by the Assad government against its own people with 59 Tomahawk missiles launched from Navy Destroyers, officially killing six and potentially wounding dozens of other Syrian Army personnel. Chemical weapons are strictly prohibited by international law.

With this swift military action, President Trump saw reason to depart from his campaign stance of less entanglement in wars in the Middle East. Over the past several years, Mr. Trump has urged that the U.S. “stay out of Syria,” but he explained that the lack of humanity demonstrated by the use of chemical weapons swayed him to rethink the situation.

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The missile strike raises international tensions between the U.S.-led coalition (mostly of Western European allies) against Russia, Iran, and Turkey, all of which had strongly backed Assad. In fact, this Western neutrality on regime change in Syria—primarily because defeating ISIS is a greater priority—was seen as an important (albeit ugly) piece to the current geopolitical puzzle. The last administration infamously failed to uphold its “red line” on the behavior of the Assad government.

The president’s decision has received support from leaders in Europe, members of Congress, as well as the United Nations. However, legislators have acknowledged that any prolonged military activity will require some form of congressional consent.

Beyond the obvious risks associated with a major international conflict, the sudden change in U.S. military policy toward Syria itself caused a shock to financial markets. The safe-haven flight into gold is unlikely to abate, even if the Syrian government is toppled rather quickly. It appears that the quagmire in Syria, ravaged by years of civil war, will not be soon resolved no matter what.

NFP Miss

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The much-anticipated March nonfarm payrolls got buried by the Syria story. Nevertheless, weaker-than-expected job growth last month did contribute to more market jitters. The Labor Department reported that just 98,000 new jobs were added in the U.S. during March, roughly half of what was expected (180,000). U.S. GDP during the first quarter was also reported at a meager 1%, a sharp slowdown from Q4 2016 (2.1%).

The one positive data point in the payrolls report was the unemployment rate, which remained at 4.5%. This was better than forecast and the lowest the measure has been since 2007.

In response to the generally weak NFP numbers and the escalation in Syria, crude oil prices jumped over 2% in early trading. Interestingly, the dollar made up ground against its peers, rising 0.2% to 100.9 on the DXY index. Stocks around the globe sank on Friday. Government bonds rose slightly, with 10-year Treasury yields falling to 2.31%.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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