Gold failed to rally after the U.S. military action in Syria. What does it mean for the gold market?
On the morning of April 6, 2017, the U.S. launched 59 Tomahawk cruise missiles aimed at the Shayrat Airbase controlled by President Bashar al-Assad’s forces. The strike was a direct response to the reported Syrian government’s use of chemical weapons on civilians on April 4. U.S. President Donald Trump justified the move by stating: “It is in this vital national security interest of the United States to prevent and deter the spread and use of deadly chemical weapons”.
Some people believe that the use of chemical weapons was a false flag. Others are disappointed with Trump who promised a less interventionist stance during his presidential campaign. Perhaps he just needed a political win after a failure to overhaul Obamacare and wanted to stop the allegations about his unclear ties with the Russians. We do not know that. What we do know is that gold’s bullish reaction was very limited. The price of the yellow metal surged initially after the strike from $1,250 to almost $1,270, but those gains quickly eroded during the day, as one can see in the chart below.
Chart 1: Gold prices from April 6 to April 7.
Moreover, gold showed neither a significant reaction to Friday’s weak payrolls nor to the weekend news that the U.S. was sending a Navy task force to waters off North Korea. As we explained yesterday, gold’s lackluster performance is rather bearish. However, investors should remember that the geopolitical trade is usually a temporary one, which fades quickly when emotions stabilize. The U.S. strikes in Syria were probably a one-off event, so it should not change the medium- and long-term prospects of the gold market. That being said, the rising tensions between the U.S. and Russia, and between the U.S. and North Korea, are a supportive factor for the gold market, as they could trigger the next major geopolitical crisis. Stay tuned.
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.