(Kitco News) – Unrest in the Middle East is keeping investors on edge, and gold is one of the first assets to react – surpassing the critical psychological level of $2,000 an ounce and trading near its 2.5-month high on Friday.
It won’t be surprising to see gold Witness daily gains of more than $100 as the war between Israel and Hamas intensifies, Larry Lepard, managing partner and founder of Equity Management Associates, told Michelle Makori, senior anchor and editor-in-chief of Kitco News.
“Gold has risen a lot in a very short time,” Lepard said Thursday. “And it’s a combination of war and detecting the underlying problem in the bond market. When geopolitical unrest arises, gold tends to feel it first.
Gold has gained more than $160 since the Hamas terrorist group attacked Israel on Oct. 7, killing more than 1,400 people, most of them civilians. Since then, the conflict has intensified, with gold breaking the $2,000 an ounce level on Friday and December Comex gold futures last trading at $2,005.90, up 1.28% on the day.
Markets are digesting the latest developments ahead of another uncertain weekend, including the Pentagon saying the U.S. Navy warship intercepted three cruise missiles and several drones launched by the Iran-aligned Houthi movement from Yemen. Iran has also called for an embargo against Israel, including an oil embargo against the country. Iran also warned that if Israel launched a ground operation in Gaza to retaliate against Hamas and rescue the hostages, it would activate its mandated terrorist groups on multiple fronts.
There is a 20% chance that this conflict will degenerate into a “total disaster,” Lepard said, with economic consequences that “would probably be greater than in 2008, and probably greater than in 2020. What could it do? happen that would be more serious than those of 2020? “There are two things? It would be a really major war. It doesn’t seem impossible to me,” he stressed.
The United States lives in a false narrative that everything is fine. But regional banks still face $600 billion in commercial real estate losses, according to Lepard.
“You know something is going to break, and then it’s going to cascade in a very similar way to what happened in 2008,” Lepard described. “It would be a total disaster. And I don’t think it’s possible that the Federal Reserve won’t be called upon to do the patriotic gesture and print the money necessary to keep the system going, inflation be damned.”
This could mean a significant drop in stock markets, between 30 and 50%. For gold, this would result in daily price movements of over $100, with Bitcoin will likely follow at some point.
Lepard envisions price movements of a similar magnitude to those in March 2020 after the Federal Reserve stepped in to support the U.S. economy and gold surged, hitting record highs. “Gold went up a hundred dollars a day, two days in a row. You never see that. And that’s what would happen again this time. So I think everyone needs to prepare for it,” noted Lepard.
Best and worst case scenarios
Even in a best-case scenario, in which the war between Israel and Hamas does not escalate into a major regional conflict or a World War III type situation, gold is expected to reach $2,500 per ounce after surpassing $2 $100, Lepard told Kitco News.
“Gold is going to cross $2,100, which is a very important level. And when it crosses that level, people will be aiming for a new all-time high. We’ll be at $2,500, maybe even $3,000 “, did he declare. “Assuming the best case scenario during the war, we are still in deep trouble financially and economically.”
Bitcoin will also likely catch up with safe-haven supply and follow gold’s rally. “My goal for mid to late next year is $2,500 to $3,000 gold and $50,000 to $100,000. Bitcoin“, he added. “It assumes the best-case scenario of the war, which is that things calm down and nothing gets worse.”
To know when Bitcoin is likely to start rallying, watch the video above.
At the same time, the worst-case scenario, in which the Israel-Hamas conflict turns into a major war, is also not implausible, according to Lepard.
The Fed’s easing cycle is near, what it means for markets
There’s a high probability the Fed is done raising rates because the bond market is signaling something is about to break, Lepard said.
The yield on the 10-year Treasury note, which moves inversely to prices, is trading above 4.9%, a level last seen in 2007.
“The Fed knows that if it continues to raise rates, it will break the bond market. It may have already broken it, but it will break it beyond repair. “We are moving towards monetary easing “, said Lepard. “And what is gold odors. Gold also smells of war, and gold it always goes up when there is instability.”
Watch the video above for Lepard’s take on the Fed’s next move and what central bank Chairman Jerome Powell is afraid to tackle at the end of the year.
Lepard also explores the idea of sound money and which safe haven assets are best to hold during increased geopolitical uncertainty and makes the case for Bitcoin as well as gold.