I write this piece early Sunday morning, June 22, before global markets open yet after the supposed bombings of Iranian nuclear facilities by US B-2 stealth bombers. As is always the case, has always been the case going back at least 60 years, the US president claimed the mission to be a complete success, bringing to mind another US president standing on the deck of an aircraft carrier in 2003 and described the post 9-11 invasion of Iraq as “Mission Accomplished”. Of course it wasn’t. The Iraq War would last until at least 2011, another 8 years down the road.
As I write this, I’m rewatching the Ken Burns series “The Vietnam War” on PBS. I grew up during the Vietnam War. My parents were students at Kansas State University in Manhattan, Kansas in the late 1950s, were married in the early 1960s, with Dad taking the job of math teacher at Riley County High School in Riley, Kansas[i]. One of the neighboring towns tin northeast Kansas was Junction City, home of famed Fort Riley and the 1st Infantry Division, the Big Red One[ii]. I came along in August of 1965, and some of my earliest memories are of listening to cannon practice from the sprawling fort at night.
I was a kid, but what I remember from the time was the nightly news updates filled with statistics of killed and/or wounded, almost as if the War was a game. I remember seeing US Presidents, first Lyndon Johnson then Richard Nixon, come on television and tell us how well the war was going. As Burns’ series points out, the phrase that was used most often was “there is light at the end of the tunnel”. Much like later presidents would prematurely proclaim “Mission Accomplished” and “Complete Success”. As we all now know, there was no light at the end of tunnel for the US at the end of the Vietnam War, only darkness. Many years later, when I was in law school in the late 1980s, my family took a trip to Washington, D.C. The memory that stands out most to me to this day is that of visiting the two black granite walls making up the Vietnam Memorial. As you read through the 58,000-plus names, the question that comes to mind is, “What was it all for?”
I found myself asking that same question this weekend. Not only because the latest US action seemed unnecessary, a topic that will likely be debated by the talking heads all day Sunday but also directed at myself after spending the usual hours putting together Weekly Analysis of the various markets we track. What was it all for? What is it ever for when nearly every weekend is filled with certain uncertainty. (I used to say Chaos, but given the current global political situation, we have to expect the certain uncertainty, meaning it is not Chaos. This is also a subject for another day.)
What I know for sure, as I said to Kitco News in last Friday’s weekly Gold Poll is I don’t see anything changing longer-term for gold as a safe-haven market. Yes, gold could see a short-term selloff, but there will be continued buying interest given the global political and economic situation. I discussed a similar topic in last Friday’s Afternoon Commentary (FAFO Friday), “Sure, fool around and sell gold heading into an uncertain weekend, but they (those who sell) will most likely find out why gold has been a safe-haven market since the dawn of time.” Against my better judgement, I checked in on the social media raw sewage site know as X Saturday evening, with one of the questions being bandied about was how soon gold would hit $3,500.
There are a number of ways to look at the gold market. In Monthly Analysis, I use the long-term chart for the Cash Index, though I have no idea how the Index is calculated or where prices are pulled from. Nevertheless, the all-time high for the Index of $3,495.89 was posted during April, with Friday’s settlement showing a price of $3,367.99. The more heavily trade August futures contract was sitting at $3,385.73 at Friday’s close with its contract high – also a record market peak – of $3,539.30 from the week of April 21. Do I think $3,500 is a key price? No. Central banks around the world aren’t worried about big round numbers. They will continue to buy regardless of price.
I’ve also seen talk about the coming surge in crude oil prices. In a Sunday piece for Reuters, market reporter John Kemp wrote, “Investors had started to amass a very[iii] bullish long position in crude oil futures and options following Israel’s surprise attack on June 13 – even before the United States bombed the country’s (Iran’s) nuclear installations overnight on June 21/22.” I don’t have the numbers for Brent crude, but a look at the most recent CFTC Commitments of Traders report (legacy, futures only) for WTI Crude Oil showed noncommercial interest held a net-long futures position of 191,941 contracts as of Tuesday, June 10, an increase of 24,000 contracts from the previous report. This past week saw the spot-month contract close $8.29 higher from Tuesday-to-Tuesday indicating investors were indeed continuing to add long futures positions. Meanwhile, the spot futures spread saw its backwardation (inverse) strengthen last week, closing Friday at $1.83 as compared to the previous Friday’s $1.73. This tells us the commercial side was also protecting itself heading into the weekend.
What about the third King of Commodities – Corn? Does it have a reason to rally with gold and crude oil? Based on the escalation of violence in the Middle East, I’d say no. Recall corn is a weather derivative market meaning traders could be paying more attention to weather developments across the US Plains and Midwest during this early summer heat wave. A look at the past 24-hour precipitation accumulation map shows most of the US growing area was dry, with today’s forecast calling for more of the same. This, combined with the expected volatility in gold and crude oil, could bring some buyers back to the corn market. But I don’t know this, nor does anyone on social media who tells you they do. It’s a crapshoot at this point, particularly short-term. As for long-term investment (or hedge) positions, nothing has changed based on Market Rule #6: Fundamentals win in the end. As we watch this week play out, we’ll see if those fundamentals have changed.
Until next time.
Darin Newsom
[i] Fans of US football might remember a famous alum of RCHS, Jordy Nelson who played for both Kansas State University and the Green Bay Packers.
[ii] A check of Wikipedia, for what that’s worth, and I found this regarding the Big Red One,” The leading element, the 1st Battalion, 18th Infantry, left (Fort Riley) in July 1965 with the Division Headquarters arriving in South Vietnam in September.
[iii]Even world-renowned reporters sometimes forget what Mark Twain once said about writing, “Substitute ‘damn’ every time you’re inclined to write ‘very’; your editor will delete it and the writing will be just as it should be.”
