Gold & Silver Rocket (more) on War & Economy Double

The combination of deteriorating economic conditions and the specter of a global war saw gold and silver prices jump the most since the banking crisis on Friday – Gold was up $108 (3.6%) and Silver $1.54 (4.5%) in Aussie dollar terms and $64 & 93c in US dollars with gold spot price now $1930 (up over 5% for the week) and silver spot price $22.70 (at time of writing). Conversely the S&P500 was down and the NASDAQ down heavily.

To get the gravity of the situation from a financial markets point of view, the head of the world‘s biggest bank, J P Morgan had this to say in a statement accompanying the bank’s quarterly earnings:

“This may be the most dangerous time the world has seen in decades…….far-reaching impacts on energy and food markets, global trade and geopolitical relationships.”

At a time when increasing signs of stickier than expected inflation grew, along comes a war in the middle east adding weight to price pressures on oil and commodities (oil too rocketed Friday night), particularly as Iran weighs in warning of dire consequences.

The implications for metals are profound. At a time when the US struggles to sell bonds to finance its deficits, big licks of debt are maturing in a 5% environment, and inflation stays stronger than expected putting further pressure on the situation; the pressure on the Fed to step in to buy the bonds to monetise the debt and respond to the now seemingly inevitable recession increases. The prospect then of that perversely increasing inflation again looms large. That is stagflation, negative real rates (as inflation is high and nominal rates low) – gold‘s sweet spot - and it’s happened before as Crescat‘s Tavi Costa tweeted last week (before Friday’s jump):

This spike in price aligns perfectly with that brilliant interview our Chief Economist, Chris Tipper, did last week calling the bottom in for gold.