Very fertile ground

Tuesday, 26 September 2017
Melbourne, Australia
By Bernd Struben

  • Hot air lifts gold
  • Gold to US$1,400 per ounce
  • ‘Cannabis mega bull’

The war of words across the Pacific continues apace.

If only Australia could harness the vitriol being exchanged between Donald Trump’s and Kim Jong-un’s regimes. Our energy woes would be over.

Unfortunately, it looks like Australia’s woes could just be beginning.

And I’m not talking about the looming gas shortage — even though officials just upgraded the expected shortfall for 2018. It’s now three times what these same experts projected earlier in the year.

Could they still be lowballing the true Liquefied natural gas (LNG) supply deficit? Of course. But that’s a story for a different day.

Today we’ll kick-off with a look at how the tensions over North Korea’s nuclear ambitions continue to heat up. And the affect this is likely to have on the markets.

One clear effect is the spike in the gold price. It’s now up 1.4% since I wrote to you last Thursday. That’s when I recommended you consider increasing your exposure to gold due to the ongoing North Korean saga. I also offered you a glimpse of what could be the best gold stocks on the ASX. You can review those here.

We’ll get back to that right after a look at the markets.

Markets

Overnight, the Dow Jones Industrial Average fell 53.50 points, or 0.24%.

The S&P 500 lost 5.56 points, or 0.22%.

In Europe, the Euro Stoxx 50 index finished down 3.61 points, or 0.10%. Meanwhile, the FTSE 100 lost 0.13%, and Germany’s DAX index gained 0.02%.

In Asian markets, Japan’s Nikkei 225 index is down 71.39 points, or 0.35%. China’s CSI 300 is up 0.05%.

In Australia, the S&P/ASX 200 is down 6.13points, or 0.11%.

On the commodities markets, West Texas Intermediate crude oil is US$52.09 per barrel. Brent crude is US$59.12 per barrel.

Gold is trading for US$1,309.68 (AU$1,650.09) per troy ounce. Silver is US$17.15 (AU$21.61) per troy ounce.

One bitcoin is worth US$3,937.86.

The Aussie dollar is worth 79.37 US cents.

Hot air lifts gold

The dangerous rhetoric flying between Washington DC and Pyongyang has reversed gold’s recent downward slide.

Higher interest rates and tighter monetary policies tend to see the gold price fall…at least in the shorter term. That’s because gold doesn’t offer any yield.

And as you likely know, the US Federal Reserve signalled its intent to lift US rates one more time this year. The Fed also intends to begin unwinding it US$4.5 trillion balance sheet. That, by the way, is the price tag of ‘recovery’ from the 2008 financial meltdown. (Yet another story for a different day.)

Have a look at the chart below. It shows the spot gold price in US dollars over the past 30 days.



chart image

Source: Bloomberg
Click to enlarge

Gold peaked at US$1,349.22 on 7 September. Much of its earlier rise was due to…you guessed it — investor angst over possible trade and shooting wars in Asia.

The yellow metal then fell as investors absorbed the news of the Federal Reserve’s tightening plans. Investors were also lulled into a false sense of security on the geopolitical scene. Military conflict with a nuclear armed North Korea is, after all, unimaginable.

But the latest round of sabre rattling has again seen investors bidding up the price of gold, while most global stock markets dipped.

Phillip Streible, senior commodities broker at RJO Futures in Chicago, sounded off on the dangerous war of words between the US and North Korea. He says it will:

‘…create a shift in assets. People are going to come out of shiftier assets like the SP 500 and go into safe havens like gold, silver and the US treasuries.

Jason Stevenson, our in-house gold expert at Gold Stock Trader, offered this advice in today’s Markets & Money:

The dictator [Kim Jong-un] might not start a war tomorrow. But he could easily fire another missile. That’s why you should trade on your toes. Because, at any moment, if tensions start to rise again, gold could fly higher.’

And if recent events are anything to go by, tensions certainly look to be on the rise again.

First Donald Trump used his podium at the United Nations General Assembly as a bully pulpit. His main target, of course, was Kim Jong-un.

Not to be outdone, North Korean Foreign Minister Ri Yong-ho had his turn to address the Assembly on Saturday. His speech came just hours after the US Air Force flew fighters and bombers off the North Korean coast. Albeit still over international waters.

Aside from some juvenile mudslinging, Yong-ho also tossed out this bombshell. He said North Korea firing rockets to the US was now ‘inevitable’, as reported by Reuters.

And then there’s this, from The Australian this morning:

North Korea’s top diplomat says Donald Trump has declared war against his country and that Pyongyang now has the right to shoot US bombers from the sky…

“Last weekend Trump claimed that our leadership wouldn’t be around much longer and declared a war on our country,” North Korea’s foreign minister Ri Long Ho said today in New York.

“Since the United States declared war on our country, we will have every right to make all self-defensive counter measures, including the right to shoot down the United States strategic bombers at any time even when they are not yet inside the aerospace border of our country,” Mr Ri said.’

As you read in the markets section above, the S&P 500 lost 0.22% on Monday. While the Dow Jones fell 0.24%. Initial losses were much higher though, with both exchanges down 0.6% in morning trading on news of the heightened tensions.

Gold, on the other hand, was up more than 1%.

Unless you expect the situation over North Korea to ease — in which case, congratulations on your optimism — you can also expect that the gold price should continue upwards. Though never in a straight line.

Owning physical gold — coins or bullion — is one option. Though you’ll need to decide how and where you wish to store it. ETFS Physical Gold [ASX:GOLD] is another option. This ETF closely tracks the price of gold and trades like any other share on the ASX.

To get the most bang for your buck in a rising gold market though, it’s hard to beat owning shares in the top gold miners. These stocks are leveraged to the price of gold. Meaning when gold goes up, their share prices tend to rise much more.

Details here.

Gold to US$1,400 per ounce

Before leaving gold for the day, a word from the chairman of the World Gold Council.

From Bloomberg:

The world may have already produced the most gold in a year it ever will, according to the chairman of the World Gold Council.

Production is likely to plateau at best, before slowly declining as demand rises, especially given global political risks and robust purchases by consumers in India and China, Randall Oliphant said in an interview Monday.

“It’s not clear how the whole U.S. political system will play out,” said Oliphant, an industry veteran who’s been an executive at some of the world’s biggest gold miners. “All this uncertainty seems very fertile ground for people to get into gold.”

Prices could climb to as high as $1,400 an ounce in the next 12 months, and top record highs in the “medium term,” Oliphant said at the Denver Gold Forum…’

Gold Stock Trader’s Jason Stevenson notes that gold has already proven a great investment this year. As he wrote to me earlier today, ‘The yellow metal’s soared 14% this year. That compares to silver and platinum, up 6% and 4%.

You can check out Jason’s favourite gold plays here.

‘Cannabis mega bull’

Yesterday I wrote to you about the astounding opportunities that still lie ahead in the burgeoning legal cannabis markets.

State by state in the US — and nation by nation across the world — the decades’ long prohibition against ‘the devil weed’ is falling by the wayside. And the best pot stocks have already seen gains of 1,000% or more.

But if you think you’ve missed the boat on this opportunity, think again.

Here’s what Chris Lowe had to say about the wave of marijuana mania in Inner Circle, one of our international affiliate publications, on Friday.

Earlier this month, Inner Circle regular Nick Giambruno at Casey Research made a big call on what he calls the “cannabis mega bull”.

According to Nick — a seasoned investor and protégé of legendary international speculator Doug Casey — he’s NEVER seen an opportunity with as much profit potential as the legal cannabis market has right now.’

Our own cannabis investment expert, Sam Volkering certainly agrees.

Sam sees the sweeping legalisation of the recreational use of marijuana — such as we’re likely to see in Canada next year — as a huge boon to the best pot stocks. But he believes the biggest potential, both for investors and the world, lies in marijuana’s barely tapped medicinal applications.

As he wrote to his subscribers last week

In short, as the world opens their eyes to the medical potential of marijuana, prohibition will fall and legalisation will rise. And along the way, it will create one of the biggest medical revolutions of the modern era — and enormous upside potential for shareholders in marijuana stocks.’

Go here for the full story.

Cheers,
Bernd