Last Friday, the US surprised the world by sending 59 tomahawk missiles into Syrian military targets, supposedly in response to Syria using chemical weapons on its own civilians. All this happened when Chinese premier Xi Jinping was in Florida meeting Trump for the first time.
The timing of the attack on Syria, while Trump was hosting the premier of one the world's largest superpower, was uncanny. On his campaign trail, Trump had argued that China was to blame for the emergence of North Korea as a nuclear threat. When North Korea conducted missile tests prior to Trump's meeting with Xi Jinping, Trump had responded with this quote "China will either decide to help us with North Korea or they won't. If they do, that will be very good for China, and if they don't, it won't be good for anyone."
Did Trump arrange for the attack on Syria to coincide with the meeting with Xi Jinping, so that the Chinese premier could see that Trump was someone who means what he says, and is not an all-talk-no-action figurehead who fails to carry out his word?
Whatever Trump's intentions were, Xi Jinping seemed to have come to a consensus with Trump. US Secretary of state Rex Tillerson stated this weekend: "President Xi clearly understands, and I think agrees, that the situation (North Korea) has intensified and has reached a certain level of threat that action has to be taken". This comes as the US deployed a strike group towards the Western Pacific Ocean, with the aim of establishing a presence near the Korean peninsula.
The National Security Council on Friday had also presented Trump with a variety of options to deal with North Korea's nuclear threat - including placing nukes in South Korea or killing North Korean leader Kim Jong-un.
To add to this volatile backdrop, Russian prime minister Dmitry Medvedev denounced the US attack on Syria, and stated that Russia was "one step from war" with the US over Syria.
As can be seen, tensions are rising with the world's three largest superpowers dragged into the mix over conflict in the Middle East and North Korea. On Friday after the missile attack, gold rallied past the 1250-1255 resistance area to make highs of close to 1270. Although gold returned some of its gains after the USD strengthened after Friday's non-farm payrolls print, I believe this presents a good opportunity to buy gold on the dip.
To put things into perspective, we have 1) an increasingly volatile and complex macro backdrop after the Syrian attacks, especially with North Korea now on the US' radar and Russia dragged into the mix, 2) upcoming elections in France and Germany this year (which have fallen off the radar recently), and 3) volatility levels in the equity markets relatively low with the VIX at 13 vs. its 52-week range of 10-27.
Gold looks like a solid buying opportunity at this point in time, not merely as a volatility hedge, but as a security that can provide outsized capital gains after price action broke out of the 1250-1255 resistance area. I would look to buy gold at 1255, with a stop loss at 1235, and a take profit target of at least 1300.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.