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Wednesday, December 19th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Oil Spike Creates Flight to Safe Havens in Precious Metals

Many of the great declines in the stock market over the past 30 years have been related to oil. This week we have seen the major indices plummet on geopolitical chaos throughout North Africa, especially large oil-producing Libya, as investors returned to gold (SPDR Gold Shares (GLD)), silver (iShares Silver Trust (SLV)) and oil (United States Oil ETF (USO)). As the market reached record overbought territory, Libya has been an excuse to begin a significant pullback in equities (SPDR S&P 500 (SPY)).

At the end of January investors returned to precious metals. Gold has been on sale every six months. A January phenomenon occurs when mutual funds and institutional investors reposition their holdings, sometimes allowing investors to buy a sector on sale. At the end of January, gold and silver found support as geopolitical conditions worsened. The recent Libyan crisis has caused oil to join the run in gold and silver. This oil spike has in turn caused a decline in equities. Investors are selling equities and seeking safe havens which are currently gold, silver and now returning to long term treasuries (TLT). Similar to what we began seeing in early 2010 as Europe came under pressure with sovereign debt issues.

As much as the financial crisis and record government spending has helped gold soar to record highs, terrorism and war have been major drivers of the price since September 11, 2001. The Middle East possesses approximately 65% of the world’s oil reserves, and Egypt in particular has two key assets which effect the global oil trade: the Suez Canal and the Sumed Pipeline. Many analysts did not expect Libya to fall into civil war. Reports are showing that oil exports are being curtailed, sending oil into new 52-week highs. Gold and silver has been in a 10-year uptrend and have been the safe haven and hedge against terrorism, war and skyrocketing deficits.

Disclosure: I am long GLD, GDX.

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