Christmas Terrorism Event Likely to Spike Gold Prices Higher

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Gold seems to have nowhere to go but downward now that stocks are again attracting capital investment. However, gold’s downward drift may be abruptly replaced by a spike higher at any moment over the next week or so due to a very relative “event risk.” I see this event risk as probable enough to suggest the closing of the short positions against gold that I’ve supported from September until now. Investors might even consider taking new long stakes in gold or to take stakes in volatility instruments to hedge against risk, at least for the next week or so, despite the heavy weight against gold if the “event” does not come into play.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Christmas Terrorist Attack Could Spike Gold

1-Year Chart of GLD at Seeking Alpha

Since my September 5th report, I have mostly discussed the downside likelihood for gold, and I have been correct, given the 7.8% decline in the SPDR Gold Trust (NYSE: GLD) from then through today’s close. Note also that the GLD was actually up approximately 5% on the year-to-date into September 5, a period in which I was often criticized for being bullish gold, especially on the early year capital flow catalyst I saw and the spring-time influence of Russia.

I would certainly continue to favor the downside for gold now given recent central bank actions both here in the U.S. and in Europe and Japan. However, my position is now disrupted by a near-term threat to the short bet against gold. There is a highly relative and significantly possible event risk that could cause a near-term spike in gold prices, and it’s not worth bearing for short investors. As a result, and despite the tendency for gold to otherwise drift further lower near-term, I am pulling my downside call here and my target for the SPDR Gold Trust (NYSE: GLD), at $105, and suggesting investors close short positions for now.

The event risk I write of is that of terrorism potential this week, which I and relative geopolitical experts see as relative during the Christmas period. Over the past week or so, events have occurred in Australia, Pakistan, Nigeria and France, but those regions are not very relative to U.S. investors today. Neither have the attacks by individuals within the U.S. bothered gold or stocks much. However, historical precedence, heightened jihadism in Iraq and Syria, and fresh relevant threats make this worthy of investor attention and preparation, including within our portfolio of holdings today. The historical precedence is the foiled plot of the infamous “underwear bomber” to destroy a commercial passenger jet on Christmas Day 2009. The relevant threat is against airliners around Christmas in Europe and potentially in America. Of course, any terrorism, if Americans feel like it threatens them, would shake up capital markets and potentially disrupt the dollar’s rise against other currencies, and lift gold.

Precious Metals Security	12-22-14	YTD	TTM
SPDR Gold Trust (NYSE: GLD)	-1.9%	-4.6%	-2.9%
iShares Silver Trust (NYSE: SLV)	-2.6%	-17.7%	-17.4%
Market Vectors Gold Miners (NYSE: GDX)	-5.1%	-12.3%	-8.9%
Direxion Daily Gold Miners Bull 3X (NYSE: NUGT)	-15.3%	-68.4%	-60.8%
Direxion Daily Gold Miners Bear 3X (NYSE: DUST)	+15.2%	-23.9%	-41.5%
Goldcorp (NYSE: GG)	-5.0%	-19.3%	-12.8%
Newmont Mining (NYSE: NEM)	-5.0%	-23.5%	-19.0%

Gold relative securities have marked big losses for 2014, with just a week or so more to go for the year. In fact, they continued their slide Monday as stocks continue to rally and draw capital from other sectors of investment, which I suspected would happen and so held off on the writing of this article a day longer. I expect gold to continue to slide, unless and until the event risk of relevance here becomes reality. This is something gold investors both long and short should be aware of and prepared for. While I hope and pray the event risk of terrorism does not occur, I suggest investors currently short gold take off bets here and even consider long stakes, if not hedges in volatility instruments like the iPath S&P VIX ST Futures ETN (NYSE: VXX). I cover the market and gold regularly, so readers may find value in following our blog and my column.

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