Gold, Crude Speculators Betting “Mission Not Accomplished”

Early Saturday local time, the U.S., U.K. and France coordinated a missile attack on Syria, bombing three government sites suspected of being chemical weapons facilities. The move was in response to a suspected chemical attack on the town of Douma last week which killed dozens.

U.S. President Donald Trump said in an address from the White House, “The nations of Britain, France and the United States of America have marshalled their righteous power against barbarism and brutality.”

“The purpose of our actions tonight is to establish a strong deterrent against the production, spread, and use of chemical weapons,” he said.

Following the attack, Russian President Vladimir Putin condemned the Western strikes “in the most serious way”. Putin also branded the coalition strike as an “act of aggression,” as he demanded an emergency session of the U.N. Security Council on Saturday. The UN Security Council vote was rejected.

Potential Impact on the Markets

In a tweet, President Trump said, “A perfectly executed strike last night. Thank you France and the United Kingdom for their wisdom and the power of their fine Military. Could not have had a better result. Mission Accomplished!”

But was the mission actually accomplished? Trump’s use of the phase “Mission Accomplished” brought back memories of former President George W. Bush, who used the same phrase which came back to haunt him when the war in Iraq continued for years after he essentially declared it over.

In a briefing on Saturday, Pentagon officials also described the Syria bombing as having successfully accomplished its goals.

Defense Secretary James Mattis confirmed that this was a “one-time shot,” and that the strike was directed solely at the Assad regime, not at Russia, a supporter of the Assad regime.

Here’s what should impact the market this week, if the strike injured or killed any Russians, we could potentially face an escalating military conflict. If the strikes didn’t do enough to deter the Assad regime of further chemical attacks, or if the strikes were too limited, it’s possible that we’ll see more aggressive acts from Assad and additional retaliatory strikes from the US-led coalition.

Based on last week’s price action, I expect to see buyers drive gold and crude oil sharply higher because I don’t think the situation in Syria will improve over the near-term. Late last week, traders seemed to downplay an imminent attack by the U.S. This week-end’s action likely took investors by surprise so I expect to see money moving out of risky assets and into safe-haven assets.

I know there will be some who will argue the element of surprise isn’t there anymore. However, I do expect to see some kind of retaliation by Syria and Russia. Maybe not a direct attack on the U.S., U.K. or France, but probably on the rebels. So, yes, there is still an element of surprise because we don’t know how and when Russia and Syria will respond. This is enough to keep investors on edge.

Stocks could open sharply lower on Monday. I didn’t really understand the stock market rally last week. Just a short while ago, stocks were breaking sharply when President Trump was complaining about Amazon’s deal with the U.S. Post Office and China was retaliating against U.S. tariffs. Last week, there was almost no reaction to the threat of a missile attack even after Trump said there could be.

Since investors didn’t take protection last week, it’s difficult to predict if stock players will continue to take this attitude now that the attacks have taken place, or will they dare Trump to bomb again?

In summary, I think investors will take protection in the traditional safe-haven assets – gold, Yen and Treasuries, but I’m not too sure about the response by equity traders. The stock market is due for a short-term correction anyway because the indexes have rallied 7 to 10 days which is their normal pattern.

Perhaps the selling in the stock market will be strong enough to take out the February lows which have been sitting there for two months seemingly waiting for the next wave of aggressive sellers to take them out. Perhaps investors will shrug off the news and react to earnings instead.