Gold posted strong gains in the second half of last month amid trade war worries and geopolitical tensions. The classic safe-haven buying trend picked up, as US President Donald Trump imposed high import tariffs on several important commodities. It accelerated, as geopolitical tensions stemming from the Middle East stirred up again, only cooling down ahead of the holiday break. These arguments appear to support the case for gold outperforming in 2018.
Taking the drivers one by one, the trade war worries flared up during the middle of last month when the Trump administration slapped high tariffs on steel and aluminum. Both commodities are used extensively in construction and industry, and the tariffs represent a significant block to foreign companies selling to the US.
The country was the world’s number one steel importer, with a recent peak in 2015 of imports valued at US$30.5 billion. Between 2009 to 2016, a massive steel deficit was built up amounting to minus 269 per cent. The White House’s protectionism may boost domestic steel producers, but fears over a global trade war rippled through the markets, boosting gold. Risk-off patterns emerged, and animal spirits only started to calm down after the news that the EU would be exempt for the time being from steel import tariffs to the US.
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US stocks ended week with deep sellof on trade war worries
Global markets rattled by the prospect of a trade war
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Geopolitical tensions over Russia versus the West worried investors even more towards the end of last month. Diplomatic relations fell to lows unseen since the Cold War, with gold providing comfort to wary investors. At the same time, further tensions between the Gulf and Iran stoked more uncertainty, adding to safe-haven buying urges.
It appears investors are even more concerned over political tensions than the prospect of more trade wars, a sentiment I share. Still, when the twin spectres of protectionism and geopolitical tensions appear at the same time, a sharp spike in the gold price is only to be expected. In fact, four out of four of the commodity's most bullish price drivers made an appearance in March, when you add in the volatility in stock markets and an expected rise in inflation which featured strongly in economic news.
Not even the Federal Reserve’s monetary tightening appears to be slowing down gold’s rally. Taking a look back, the precious metal outperformed during four of the last six tightening cycles. Monetary tightening may normally be expected to have a bearish effect on the precious metal, but other underlying factors played heavily over the last year and a half. Periods of weakness in the US dollar, and some measure of uncertainty over US growth versus its high debt levels still give investors pause and an inclination towards safe havens. Last but arguably not least, the revolving door of Trump’s administration has key government figures coming and going in a blaze of publicity, knocking on investor confidence.
Looking ahead into the second quarter, gold may continue to outperform on the basis that geopolitical tensions and protectionism in the US are likely to prevail, spooking investors into safe-haven buying.
Hussein Sayed is the chief market strategist at FXTM
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The major Hashd factions linked to Iran:
Badr Organisation: Seen as the most militarily capable faction in the Hashd. Iraqi Shiite exiles opposed to Saddam Hussein set up the group in Tehran in the early 1980s as the Badr Corps under the supervision of the Iran Revolutionary Guards Corps (IRGC). The militia exalts Iran’s Supreme Leader Ali Khamenei but intermittently cooperated with the US military.
Saraya Al Salam (Peace Brigade): Comprised of former members of the officially defunct Mahdi Army, a militia that was commanded by Iraqi cleric Moqtada Al Sadr and fought US and Iraqi government and other forces between 2004 and 2008. As part of a political overhaul aimed as casting Mr Al Sadr as a more nationalist and less sectarian figure, the cleric formed Saraya Al Salam in 2014. The group’s relations with Iran has been volatile.
Kataeb Hezbollah: The group, which is fighting on behalf of the Bashar Al Assad government in Syria, traces its origins to attacks on US forces in Iraq in 2004 and adopts a tough stance against Washington, calling the United States “the enemy of humanity”.
Asaeb Ahl Al Haq: An offshoot of the Mahdi Army active in Syria. Asaeb Ahl Al Haq’s leader Qais al Khazali was a student of Mr Al Moqtada’s late father Mohammed Sadeq Al Sadr, a prominent Shiite cleric who was killed during Saddam Hussein’s rule.
Harakat Hezbollah Al Nujaba: Formed in 2013 to fight alongside Mr Al Assad’s loyalists in Syria before joining the Hashd. The group is seen as among the most ideological and sectarian-driven Hashd militias in Syria and is the major recruiter of foreign fighters to Syria.
Saraya Al Khorasani: The ICRG formed Saraya Al Khorasani in the mid-1990s and the group is seen as the most ideologically attached to Iran among Tehran’s satellites in Iraq.
(Source: The Wilson Centre, the International Centre for the Study of Radicalisation)
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The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
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