Middle East and Iran Risks Effect the Gold Market

History’s old battlegrounds in the Middle East are constant reminders that various conflicts over the past fifty years can cause volatility in financial markets to increase and have impacts on our economy.

One thing you know for sure, the Mideast is a mess. Conflicts between America and Iran date back a generation and now the ‘Drumbeat of War’ is front and center. The problem is you can only watch and wonder what is next.

Here are some risks you should be aware of especially with the Federal Reserve’s easy money and why gold wins.

Technology Risk

Gold is better in your hands now rather than your dollars in the stock market or banking system.

The Department of Homeland Security issued a new National Terrorism Advisory Bulletin over the weekend warning of the potential for Iranian cyberattacks. Perhaps our own government is trying to tell us something by issuing that warning. America has the strongest armed forces the world has ever seen but the new technology of the last 25 years, stuff we all use now for every part of our lives, is now the subject of a terror advisory.

This warning should not be a surprise to anyone. The problem is you and I and most everyone we know use non-cash transactions to conduct business, pay our bills or use an ATM. Imagine if the whole system is infected and comes unglued. The government response would be we warned you. We are on our own. Just like a bad storm or hurricane, make sure you have plenty of cash and food. Forget about the bank ATM, it will not work. Imagine that occurring in a whole lot of places, like a bad storm everywhere.

To put things bluntly, if the cloud that all the banks, corporations, and everyone use rains acid in the form of viruses it will not impact your physical gold in your hands. Physical gold pushes that risk away from you and your family. The government may close the stock market or the banks, jobs will be lost, massive debt will come due and you will have your gold.

Clearly gold wins if the technology we all use suffers from a terror act.

Energy Risk

There are two sides to the crude oil story.

If problems overseas persist or blow up further, Iran is going to want to maintain some sort of control over strategic shipping lanes in the region at a time of increased tensions with their Middle East neighbors and America. So higher prices are likely just to factor in a whole list of possibilities.

The opposing argument is that the USA has enough oil and we produce a lot of it now so why worry. Another point you will hear is that lots of people use electric cars anyway and since electric cars are being used by a lot of people it doesn’t matter if gas prices spike to five or six dollars a gallon.

Both arguments are valid, but you should know that in the USA we did not have the capacity or laws to export our crude oil years ago. Congress voted a few years back to let us export crude oil. We could count on our crude oil as being ours. Now that our crude oil can be exported, if world shortages erupt, you and I will pay more for our gas, making the Federal Reserve very happy.

Under either circumstance there will be a fight, we will win, and the Federal Reserve will get what they want. Higher oil prices lead to inflation and as the cost of living increases your dollar purchasing power is once again at risk. Gold preserves that purchasing power as it has in the past and wins again.

Let us put the electric car thing to rest. If gas prices spike then lots of people will care. When people have a choice of paying for gas or their mortgage that leads to a whole other list of problems. When that happens gold historically goes much higher in price.

Stock Market Risk

It is obvious after a historical run.

The economy is plugging along. The stock market is at record highs, valuations by some measures are at levels not seen in a long time and there is an election later this year. If the consumer decides to rest a while, and the consumer can do that, uncertainty creeps in and valuations can come down. Under this circumstance, the stock market itself poses a threat to the economy. Debt levels are high. If you are diversified by owning physical gold you can avoid risks associated with overvalued stock market valuations. A ten year historical run in stocks and real estate cannot go up forever. Especially since it’s mainly due to abnormally low-interest rates and leverage.

History’s old battlegrounds in the Mideast are constant reminders that various conflicts can cause volatility in financial markets to increase and have impacts on our economy. The best way to offset those risks posed by recent events and what may come now is to diversify some assets into gold and other precious metals. You can avoid having to only watch and wonder what is next.

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