A group of hackers launched a ransomware attack on Friday that crippled America’s largest energy pipeline.

Markets aren’t reacting much today, but the implications of this attack extend far beyond what’s being reported right now.

May 10, 2021

Dear Fellow Investor,

A global pandemic…anarchist riots shutting down major cities…government spending sprees making “trillion” the new “billion”…crypto currencies — including a joke dog coin — soaring to the moon…

…And many more examples of a world gone wild than I can list here.

With all that, it’s fair to say that few of us had “Russian cyberattack shutting down U.S. fuel network” on our bingo cards.

But that’s what happened over the weekend, as hackers deploying ransomware crippled the Colonial Pipeline — America’s largest fuel pipeline.

The markets don’t seem to be reacting much to this event today, as the Dow is setting another record high and energy futures were mixed.

The markets are not only digesting the cyberattack, but also a huge miss in Friday’s nonfarm payrolls report, with just 266,000 jobs created in April, against expectations for over a million. And it seems the markets are reacting to all this by soaring higher.

Again, it seems like the world, financial and otherwise, has gone crazy.

The Real Danger Lurking Behind This Attack…

For its initial impact, this cyberattack was bad enough. There has been no news from the Colonial Pipeline operators as to when this crucial infrastructure, which transports gas, diesel, home heating oil and jet fuel from Texas and Louisiana refineries to over 50 million users in the South and Northeast, will be back in operation.

Note that this single pipeline transports over 45% of the fuel consumed on the U.S. east coast.

The key day is this Wednesday. If the interruption lasts longer than that, we’ll begin to see important impacts on energy markets, and undoubtedly financial markets as well.

(Alert: The pipeline operators just announced that they don’t expect operations to resume until Friday!)

All this said, there’s a much more compelling long-term implication hiding behind the immediate impacts.

You see, digital forensic experts are calling this attack, the first major one on the U.S. energy infrastructure, a “proof of concept” experiment for a war fought on a digital battlefield.

In fact, if a connection between the Russian government and this supposedly private “DarkSide” hacking network were able to be proven, some are saying this attack is essentially an act of war.

So even though the markets may be shrugging it off, you can bet they’re going nuts in Washington. As I write, the White House is conducting a press conference and listing an alphabet soup of government agencies now being mobilized.

The bigger picture security threat is being noticed to some degree in the markets, with an apparent flight to safety…with a twist.

For example, as I write gold is up about $6.00, and has been up as much as $16.00. My experienced eye is seeing every advance met by blocks of selling, from someone, to keep the rally bottled up. After big gains last Thursday and Friday, you’d expect some weakness today…but I would’ve also expected a much larger response in gold to this cyberattack.

Still, it’s important to note that gold is outperforming silver, which has been fluctuating around unchanged today. When gold beats out silver, it’s typically a sign that geopolitical issues are trumping monetary factors.

Treasury yields were falling earlier today, but have since rebounded. Interestingly, and perhaps because this attack exposes key vulnerabilities in U.S. defenses, the dollar is lower.

Continuing the slide it began late last week, the Dollar index is now at 90.11 and seems headed soon to an “80” handle — an event that seems likely to throw more fuel on gold’s current rally.

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What To Do Now

While this geopolitical threat is prompting buying in gold, it comes on top of an existing, monetary-based bull run in the metal. In fact, the monetary argument for gold may be the most bullish since the early 1970s.

And while silver is now underperforming gold, it is this monetary argument that will eventually lead to silver catching up and outperforming the yellow metal.

We may see some weakness in both metals over the next day or so, as bearish forces array to contain the rally.

But the factors now at work, including extraordinarily bullish monetary fundamentals (now bolstered by geopolitical factors) and an improving technical picture, should overwhelm any resistance.

It’s time to recognize that a new run higher in gold and silver has begun. I favor silver and junior silver miners at the moment, but also encourage keeping positions in both metals.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference