GOLD: More than meets the eye!

I just saw a report speculating that gold’s performance this year would be “data dependent,” specifically alluding to quantitative easing and the pace of tapering.

Data is always important, but I’m afraid that narrow view is wrong on two counts.

First of all, those who are focused on whether the Fed tapers more or less for the rest of this year are looking a few hundred feet down the road, and missing the monster roaring up on them from behind.

What drives gold is a lot more than meets the eye. For starters, it is not just what the Fed intends to do, the policies that it announces, its forward guidance, that matter. What it says it will or will not do, may or may not materialize.

But what it has already done is done. And it matters.

The sanctions put in place against Russia spell far higher gold prices.

Much more important than the tens, or even hundreds, of billions of dollars by which the Fed may adjust its money printing this year are the trillions of dollars already created. Since the mortgage meltdown, the Fed has increased the monetary base by 400 percent. Over five years the Fed has purchased more than $4 trillion in bonds with made-up money.

So far, the consequences of the money the Fed printed to buy a quarter of U.S. GDP have yet to be felt. But when that money leaks into the general economy with a recovery and new bank loans, it will bid up prices that have until now been held at bay.

This is a fait accompli. This $4 trillion genie is already out of the bottle, and no tapering modification can change it.

A second presence has also made itself felt in the gold market this year that is not “data dependent.” It is the spirit of war.

Its shadow looms large over Ukraine.

I estimate that the Ukraine and Crimea crisis was responsible for at least the last $60 of gold’s 2014 rise. That part of this year’s gain has been given back, and we are trading at prices that prevailed in mid-February, a time when the media were already calling Ukraine a “crisis,” but before Yanukovych was driven from Kiev.

But the confrontation that is playing out in Ukraine is not yet over. The prospects for an escalation of the conflict are very real, and the motives of all the participants can be shrouded in mystery.

For example, Pulitzer-prize winning investigative journalist Seymour Hersh, whose blockbusters include breaking the story of the My Lai massacre in Vietnam and the Abu Ghraib prison story in Iraq, reports this week that Turkey was behind the sarin gas attack in Syria last year, an attack that almost drew the U.S. into a larger war.

I talked with Hersh about that briefly this week and about Ukraine. He, too, believes that the confrontation with Russia remains extremely precarious.

If corroborated, his story about Turkey, a U.S. NATO ally, attempting to induce the U.S. to fight a war on its behalf, forces a similar question about events in Ukraine. U.S. officials, according to the Wall Street Journal, fear that “Russian President Vladimir Putin may be trying to create a pretext for additional military action by covertly fueling unrest in eastern Ukraine.”

By the same token, there are forces in Ukraine that would like to draw the U.S. in deeper. Are the Ukrainian nationalists, who would like their U.S. sponsors to be their military guarantors, above creating their own pretext for U.S. entry, their own false flag event? Clearly they are capable of anything. Former Ukrainian Prime Minister Yulia Timoshenko — who has just announced she will run for president — has apparently been caught on tape urging the nuclear annihilation of the 8 million Russians who live in Ukraine.

She admits the call was real, but says her remarks have been altered.

Despite most of the media having moved on to new and fresh stories, like who will succeed David Letterman, the Ukraine situation has yet to play out.

As it does, it can propel gold much higher.

Even in the best case, if in the face of real or fabricated provocations, level heads can prevail (not likely; the Ukraine bailout and sanctions passed the House by a landslide, 399 to 19; it passed in the Senate 98 to 2), and if a lid can be kept on a hot war, another consequence of crisis will be felt in the gold market.

The sanctions regime put in place against Russia is crystalizing a new Moscow-Teheran-Beijing axis. Like the trillions of dollars the Fed has already created, it does not depend on tomorrow’s data.

It, too, is a fait accompli.

And it, too, spells far higher gold prices.

Best wishes,

Charles Goyette