clivemaund.com / Clive P. Maund / April 08, 2017
In Britain in the old days there was a saying, which was “buy on a strike” which had nothing to do with economics and everything to do with psychology. When a general strike by workers was declared, stock prices would have fallen up to the point at which the strike started, when the economic outlook would have been at its worst, but well before the strike ended they would actually start rising again, as investors perceived an eventual resolution of the problems. Thus, savvy investors who bought when things looked at their worst would have made the best of the situation.
The same thing works in reverse when gold and silver look like they are going to rise due to a ramp up in geopolitical tensions. Thus, early yesterday, we had any number of market commentators and “green” investors declaring a breakout by gold and silver due to the apparently increased danger of conflict between Russia and the US after Trump lobbed about 50 cruise missiles at a Syrian airbase. Trump had 3 main reasons for initiating this strike. One is that he appears to have been genuinely outraged at the chemical attack having seen film of the victims of it, and wanted to hit back at those he saw as the perpetrators. The second is that it couldn’t do any harm to his flagging ratings in the polls, and was likely to boost them, and the third was that loosing off 50 Tomahawks at $1 – $2 million a pop is a good way of replenishing order books, and doubtless won him some powerful friends at Raytheon.
Since the cruise missile attack on the Syrian airbase may be a “one-off” and tensions are likely to ease going forward, any positive impact on gold and silver prices is likely to fade fast, and in fact it already started to before trading was done yesterday, as we will now see on the charts. So it could be said that what we talking about here is a “sell on a strike” situation, selling the PM sector on a missile strike rather than buying the broad market on a labor strike as in Britain in the distant past.
On gold’s 6-month chart we can see that it did actually break out in the early trade yesterday, above a line of resistance and its 200-day moving average, but it couldn’t hold it – the breakout failed leaving behind a bearish “shooting star” candlestick on the chart, which occurred on the 2nd highest volume this year.
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