Resource World Magazine

28 www.resourceworld.com O C T O B E R / N O V E M B E R 2 0 1 7 Speculations by Leonard Melman T he price of gold shows a signifi- cant upside breakout has taken place from late July forward. After successive rallies peaking near $1,300/oz in November 2016, April 2017 and June 2017 before turning down, the latest rally rose above that resistance and, by early September, gold topped $1,350 – close to the highest price in the last two years. When looking at this latest rally com- pared to the previous three, the obvious question becomes, "are things different this time?" I believe that may be the case. During the past two years and extend- ing back further, gold advocates saw certain events take place which should have caused powerful, sustainable rallies. For examples, we saw the Paris massa- cres; the Nice truck murders; the Brussels airport and Manchester arena bombings; the San Bernardino and Orlando kill- ings; the Brexit action in Britain and even the Trump election. These caused quick upward blips in the gold market but those rallies were not sustainable. I believe there were two reasons for these failures. First, while either horrify- ing or shocking in and of themselves, they failed to create lasting dynamic changes. Second, they were 'one-off' events occur- ring in a lone or solitary manner. When I look back to the dynamic rally of 1976-80, there was one great difference. Then, there were a series of important events that took place and the market reaction was still ongoing before the next bombshell hit. As a result, public fear began to mount and, eventually, a gold buying panic developed. The chain of events was extraordinary from a gold market point of view. Here are some of the most important: INFLATION – From 1977 going forward the inflation rate began to soar. People began to feel fear as prices soared at gro- cery stores, gasoline stations, restaurants and so on. To the public, the situation appeared to be out of control. INTEREST RATES – During the same general time frame, as price inflation began to soar, investors demanded higher rates of interest on their fixed-rate investments and bond rates began to reach historic levels, finally topping out near 20%. Mortgage costs were driven so high that many peo- ple could no longer afford to own homes. IRAN HOSTAGE CRISIS – In November 1979 sixty Americans were taken hostage at the American embassy in Teheran by a group of rioting Iranian students. For the following 14 months, Iran thumbed its nose at America, refusing to release them. America appeared to be powerless. RUSSIA INVADES AFGHANISTAN – In December 1979 Russia invaded Afghanistan and began a nine-year war and resulted in an estimated 1,000,000 deaths. Coming immediately on the heels of the Iranian Hostage Crisis, this action definitely added to general feelings of instability. AMERICA RETALIATES – President Jimmy Carter retaliated by cancelling America's participation in the 1980 Moscow Olympics, infuriating the Soviets. The American public began to be concerned about the possibility of war with the USSR. These events followed quickly one after another and I believe it was the cumulative impact of the entire series that gener- ated that stupendous golden bull. It now appears that we could be seeing a similar situation develop as we are being affected by a steady flow of crises including: STREET & UNIVERSITY DEMONS- TRATIONS – One after another, we have witnessed rioting at Trump's Inauguration; UC Berkeley (three times); May Day dem- onstrations in Portland, OR; and, most importantly, street battles resulting from confrontations between Neo-Nazis and White Supremacists and counter-demon- strators at Charlottesville. DESTRUCTION OF STATUES AND OTHER MEMORABILIA – In recent weeks, there has been a frenzy of such incidents hard on the heels of the Charlottesville uprisings. POTENTIAL FOR MILITARY CONFRON- TATION WITH NORTH KOREA – North Korea keeps stepping up the level of their nuclear bomb and ICBM testing and, given President Trump's hard line negotiating strategy, the possibility of military action has become a concern. ANIMOSITY BETWEEN MAJOR POLITICAL PARTIES HAS REACHED HISTORIC HIGHS – This makes coop- eration to solve America's and the world's problems appear unlikely. Add in rising inflationary pressures and the American government debt level now ready to blast above $20 trillion and you have a mix of problems which appear to be feeding one upon the other – just as we saw 1976-80. History tends to repeat itself, and I would suggest that gold's recent market action could be a harbinger of increasing societal awareness of gold as a safe haven as one unsolvable problem feeds upon another. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relating to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@ shaw.ca Recent gold rally driven by civil unrest and economics

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