Hurricane Irma Is a Potential Catalyst for Higher Precious Metal Prices
They may not yet be at their highest prices in a year, but gold and silver prices today are already feeling the effects. Silver is comfortably settling at the highest price of the past six months: $18.02 per ounce. Gold prices are playing the same bullish tune, hovering around $1,340 per ounce. Both silver and gold have crossed their chart resistance levels. They could overturn all bearish predictions now because of Hurricane Irma’s impact on commodities.
Even oil prices are rising. Refineries in Texas have been forced to shut down over the past 10 days. Gas prices hit $2.00 a gallon for the first time in years. Tropical storm Harvey saw to that. More expensive gas at the pump tends to push inflation. That leaves Federal Reserve Chair Janet Yellen something to ponder. But the gold and silver market could get a deeper kind of boost from Hurricane Irma.
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Indeed, barely days after Harvey devastated Houston, parts of Louisiana, and several Central American locations, Irma is here. Another terrible hurricane is threatening the United States. Residents and tourists in Miami received not-so-veiled requests to evacuate. Harvey alone, apart from the victims, has left a damage bill in the tens of billions. The Irma hurricane path affects several densely inhabited areas, as well as solitary Caribbean islands. The bill, and the toll on folks, promises to be no less dear.
Harvey was, say many meteorologists, the most devastating Atlantic hurricane to hit the United States since 2005. But the 2017 season is just beginning and Irma may not be the last, nor the worst. There are storms Jose and Katia brewing in Irma’s wake. Authorities in Mexico have already issued evacuation orders. (Source: “Right behind Irma, Jose reaches Category 3 status: Latest,” The Weather Network, September 7, 2017.)
Naturally, everyone hopes for the best and least-damaging outcome possible to humans and their possessions. But the hurricane season will affect all investors, regardless of their location. Their intensity and timing—coinciding with potential man-made disasters such as intercontinental ballistic missiles from North Korea—are bound to affect the financial markets and resources in particular.
Some commodity prices are bound to shoot through the roof. Harvey has destroyed many cotton plantations in the Mississippi Delta. Cotton prices are at their highest in months. And, as if channeling the popular movie Trading Places, orange juice will be much more expensive. As a frequent consumer of citrus, I can already attest to the higher prices I have to pay for this delicious gift of nature. As for silver and gold, both resources have already experienced bullish trends before the hurricanes arrived. Now, they will simply be more bullish.
The Gold Price Forecast for the Next Three Months
Apart from the focus on resources that the hurricanes are bringing on, gold has bullish momentum. (Source: “Mobius Foresees Cryptocurrency Crackdown Sparking a Rush to Gold,” Bloomberg, September 4, 2017.)
The rapid and unregulated growth of cryptocurrencies such as Bitcoin has attracted the long arm of the law. Governments, which have never backed them, have become more suspicious of these, given a tenser geopolitical climate.
They could crack down on these and force them to lose appeal. Gold is one of the first resources that could benefit from this trend. Moreover, the tremendous damage from Hurricane Irma—not to mention what could come after it—could shake the financial markets. This is an area where natural disaster meets potential human ones, such as a war in North Korea. The level of uncertainty is such that safe-haven resources like precious metals make sense.
The Federal Reserve has even less reason to raise interest rates. The markets would simply collapse if Janet Yellen proceeded in that direction. So for at least the next three months, realistically, gold should sustain the gains of the past few weeks. It could even add to them and a price of $1,400 per ounce in the short term has come within reach.
The Silver Price Forecast for the Next Three Months
Like gold, silver prices continue to trade at the highest prices of the past six months. I expect this trend to continue for at least the next few weeks.
Chart courtesy of StockCharts.com
One of the determining factors could come after September 9. Apart from the hurricane developments, North Korea hasn’t gone anywhere and Kim Jong-un remains in charge.
At this point, he cannot back down in his game of chicken, or if you prefer, prisoner’s dilemma. On September 9, a national holiday in Pyongyang, the Korean leader is expected to authorize another intercontinental ballistic missile test. The markets will likely express their nervousness. The market might decide to wait until September 9 to see what happens before taking a specific direction in terms of silver (and gold) prices.
Kim wants to push Trump and the other superpowers to a negotiation that would result in concessions and a lifting of sanctions. The West will not give into such demands easily. Trump has a point to prove as well. He loves negotiations and will be driving North Korea to the proverbial wall. That translates to a prolonged crisis. Look for silver to head toward the $19.00 per ounce mark.
If Kim tests a missile on September 9, a price of $20.00 per ounce cannot be excluded either. Meanwhile, note that Hurricanes Irma and Jose and any others which may follow are mere distractions in the list of market risks. No matter what Kim does in North Korea or what Irma does in Florida, it will not take away from the fact too many stocks are too expensive and begging for a massive correction. Gold and silver prices are looking bullish from every angle.
