‘Don’t Give Up on Gold!’ Says Analyst Who Has Studied 50 Years of Precious Metal Bull Runs

The gold bull run of the last 12 months has been blasted by the Iranian war, but investors are being urged to read their history and not give up on the precious metal yet.

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Gold Blasted By Iran War

The spot gold price has rocketed 60% higher over the last 12 months driven by investors flocking to it as a safe haven during a number of geopolitical and economic crises. Falling interest rates, which are good for gold, a weaker dollar and central bank demand have also played their part.

But, it’s another geopolitical crisis – the current Iran war – which has seen a big retreat in the price. It has dropped 5% over the last month falling below the magical $5,000 an ounce level.

That’s been down to attacks by all sides in the conflict on crucial energy facilities and sites in Iran and the Gulf region. The closure of the Strait of Hormuz and Iranian attacks on shipping have also squeezed supply.

It has led to surging oil and gas prices and the prospect of higher inflation. That almost automatically puts an end to hopes of lower interest rates.

Tarnished Safe Haven?

“Gold’s status as a haven may now be tarnished in the eyes of some as the precious metal is falling in price even as war roils the Middle East and financial markets alike, and some may even be tempted to say that the third major bull run in the commodity since 1971 is now over,” said AJ Bell investment director Russ Mould. “Neither interest rates staying higher for longer nor a stronger dollar may help the investment case for precious metals, but both the 1971-1980 and 2001-2010 bull runs saw several retreats which did not ultimately nullify or prevent major gains, so it may be too early to give up on gold just yet.”

He said that gold skeptics may be looking smug as the precious metal is slipping back down the shiny pole. “Skeptics who still view gold as a barbarous relic, a useless lump with no yield or even an asset that currently has a cost of ownership of 3.75% thanks to lost interest on cash will all be nodding as the metal slips back from January’s all-time high. A pause in interest rate cuts, or even tentative talk of fresh hikes, may also take the shine off gold by increasing that cost of ownership, but long-term bulls may not be so easily deterred, in the knowledge that gold has been here before,” he said.

Oil Could Be a Boost

This includes the first gold bull run when President Richard Nixon- see below – withdrew the U.S. dollar from the Gold Standard. It lasted between 1971 and 1980 and featured no fewer than three mini bear-markets, where gold fell by more than 20%, in 1973, 1974 and one that lasted more than eighteen months from January 1975 to summer 1976.

During the second bull run between 2001 and 2011, there were bear markets in 2006 and one in 2008, while there were also five corrections of more than 10%, one in each of 2003, 2004, 2006, 2009 and 2010.

That should be a fillip for nervous gold investors. Mould said oil also shouldn’t automatically be kryptonite for gold fans.

“The inflation, or stagflation, of the 1970s, thanks in part to the oil price shocks of 1973 and 1979, meant gold turned out to the optimal portfolio selection during that decade,” Mould said. “Moreover, a slowdown or recession due to higher hydrocarbon costs would surely only further stretch governments’ already brittle finances, as welfare payments rise and income from taxation drops, and that is before any additional expenditure on defence or the waging of war.”

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