War With Russia?
It’s been an ugly few weeks for gold…
The yellow metal has dropped like a stone ever since it hit multi-month highs at $1,390 an ounce in mid-March.
What started the selloff?
Investors ran for the exits just ahead of the last FOMC meeting. That’s when Federal Reserve Chairwoman Janet Yellen announced the US central bank would cut quantitative easing efforts by an additional $10 billion a month.
And since there’s still no official sign of inflation in the US economy, there really wasn’t a reason to keep gold near $1,400.
But long-term gold bulls should thank Ms. Yellen…
Why?
The recent downturn is providing us with yet another phenomenal long-term buying opportunity. And the best part is, there are numerous factors that will likely prevent gold from falling too much further.
First of all, gold can only drop so far before it starts pushing into producer break-even levels.
Speaking of which, the average all-in sustaining cost for the global gold mining industry is running around $1,100-$1,200 an ounce. In other words, miners need gold above that level or their financial statements start looking very ugly.
And that’s not all…
Gold has strong technical support at the $1,200 area. Take a look…
As you can see, gold dropped to $1,200 twice in 2013. Each time it did, buyers stepped in to push the metal higher. If the metal drops to that level again, I have little doubt we’ll see buyers step in for a third time.
But gold’s biggest bullish catalyst may be unfolding in the Ukraine…
As you’re likely aware, the past month has been worrisome for Eastern Europe. Russia invaded and annexed the Crimean peninsula of Ukraine. And now, US intelligence reveals at least 40,000 Russian troops have massed on the Eastern Ukraine border.
As a result, officials are worried Russia has plans to invade the mainland of its Western neighbor.
NATO’s Supreme Allied Commander, General Philip Breedlove, says Russia could have troops moving into Ukraine within 12 hours of getting the go signal from Moscow.
Obviously, this is not a good sign…
A Russian incursion into the Ukraine mainland will likely be met with a military response from NATO and other Allied forces.
I hate to say it, but unless some serious diplomacy takes place, we may be looking at another conflict.
What does that have to do with gold?
The yellow metal is the go-to asset in times of geopolitical crisis. Investors will likely rush into gold as worries over war with Russia grow.
How can you capitalize on the situation?
The SPDR Gold Trust Shares (GLD) is trading near $125 this morning, which is down substantially from the recent highs near $133. Long-term investors may want to start nibbling on the long side of GLD at these levels.
Remember, GLD tracks the spot price of gold. As a result, if the yellow metal rises, so will GLD!
Until Next Time,
Justin Bennett
Category: Gold
