Rise in Geopolitical Tensions Boosts Gold Prices

Mark Tepper says times like these urge investors to make safer bets.


global tension to raise gold prices


After a period of relative calmness, renewed tensions between the U.S. and North Korea have once again given gold a significant boost reports an article on CNBC. Despite a prolonged battle of words between the two sides, the leaders appeared to move a step closer towards peace as they scheduled to appear at a diplomatic summit in Singapore on June 12.

But President Trump’s abrupt cancellation of the meeting reignited concerns over the prospect of a nuclear agreement with North Korea, allowing gold to post its best day in more than a month. According to the article, the official White House explanation stated that the meeting was cancelled due to inflammatory remarks from North Korea’s top officials, which included hints that the reclusive Asian nation is ready for nuclear war should other options fail.

The article states that the heated exchanges between President Donald Trump and North Korea’s Supreme Leader Kim Jong-un rank among the most concerning geopolitical events in recent times due to the implication of a global nuclear catastrophe. The discourse coincided with North Korea’s supposed rapid development and flaunting of its nuclear might, which included intercontinental ballistic missile tests.

In an interview with CNBC, Mark Tepper, founder and president at Strategic Wealth Partners, said that times like these urge investors to make safer bets. The previous round of tensions has already given gold a major leg up, and the latest price jump shows that investors are very much cognizant of the ongoing nuclear threat.

Tepper says he values gold primarily due to its lack of correlation with other assets, such as stocks. Because of this, he finds an allocation to the yellow metal necessary even in times when other asset classes are performing well.

Besides mounting geopolitical risks, Tepper views the threat of stagflation as another reason to maintain one’s exposure to the metal. The term refers to a mixture of slower economic growth, soaring inflation and a spike in unemployment. The 1970s were a hallmark example of such an environment, which is why gold moved 15 times higher over the course of the decade.

The article writes that Tepper’s company predicts that a recession will happen sometime in the 2020s, followed by a period of stagflation. He points out that gold has historically outperformed every other major asset in times of stagflation, returning an average of 85% compared to the S&P 500’s 14%. Tepper also noted that these stretches can last anywhere from one to six years.

Combined with the North Korean revival of the Doomsday Clock and the possibility of a trade war between the U.S. and multiple other nations, gold should have no shortage of tailwinds over both the short- and long-terms.