February 1, 2011
By Alan Trujillo
MidasLetter.com
February 1, 2011
Egypt has long been a key ally of the United States and Israel, and has historically been perceived as one of the moderating influences in the never too far from explosive Middle East region. In fact, when a series of bombings at a Red Sea resort of Sharm el-Sheikh killed 88 people, the region’s relative tranquility over the previous several years was shattered.
Gold, perfectly reflecting its role as a barometer of global instability, dutifully climbed from $425 per ounce to nearly $447 by August 11, rising 5%.
At the same time, oil shot from $58 a barrel to over $70 a barrel by the end of August, for a gain of 20%.
By Friday May 5, 2006, gold was trading at $686 an ounce, and oil was still at $70 a barrel on continuing tensions in the middle east, a weakening U.S. dollar, and inflation concerns.
Sounds familiar….except for the drastic increases in prices for gold and oil.
So what could be different this time? Gold is trading in a sideways range, and oil ditto, though oil has pushed up to $92 in the last three sessions from $87.50. Though that’s hardly the 20% increase that tensions in Egypt touched off a mere 6 years ago.
And now the instability that started in Tunisia is spreading.
King Abdullah of Jordan has just fired his prime minister after street protests in Cairo emboldened Jordanian citizens to take to the streets as well.
In any period of the last 30 years since the Bretton Woods agreement was terminated and gold was allowed to trade freely (more or less), the level of tension in the middle east has had a direct and meaningful impact of the prices of both gold and oil.
While oil is strengthening in price, gold is doing the opposite. There are a number of reasons for that, according to Midas Letter editor James West.
“The prices of both gold and silver are subject to the investment interests of so many diametrically opposed groups that volatility has become the only constant,” West said. “You’ve got the U.S. government and their collusive partners in Treasury and J.P. Morgan stacking up huge short positions on the futures side, and so because the spot price is determined by future contract interest, they are easily able to influence sentiment in the market. In other words, the spot price rarely reflects the true value of gold compared to the U.S. dollar. There is a continuous effort to optically discount gold relative to the U.S. dollar to try and make U.S. Treasurys more attractive to big sovereign investors.
To make matters worse, the sovereign investors who hold U.S. T-bills are sort of coerced into participating in the scheme, else otherwise see the value of their holdings go down. Its fraudulent and criminal, and if history is any indication, temporary.”
So does that mean gold is going to rise?
“Oh you better believe it,” said West. “This political fire that started in Tunisia, that has 10 million people, has now thoroughly taken hold in Egypt, where there are 85 million people, and is going to topple Jordan too, possibly. And Yemen is right behind. You can bet the Saudi’s are very nervous at this point. All of this is equivalent to immense pressure building for gold silver and oil prices. Gold especially could explode through $2,000 before the end of this year of this situation worsens much.”
Newmont Mining (NYSE:NEM) CEO Richard O’Brien agreed.
“We see gold goint to $2,000 an ounce in the next five years,” he said in an interview with CNN. “I think we have good legs on the bull market for the next 5 to 10 years.”
Barrick Gold CEO Peter Munk said at Davos on Friday that he felt global economic instability combined with political instability in the Middle East were likely to contribute very positively to a continuing rise in the gold price.
Link
By Alan Trujillo
MidasLetter.com
February 1, 2011
Egypt has long been a key ally of the United States and Israel, and has historically been perceived as one of the moderating influences in the never too far from explosive Middle East region. In fact, when a series of bombings at a Red Sea resort of Sharm el-Sheikh killed 88 people, the region’s relative tranquility over the previous several years was shattered.
Gold, perfectly reflecting its role as a barometer of global instability, dutifully climbed from $425 per ounce to nearly $447 by August 11, rising 5%.
At the same time, oil shot from $58 a barrel to over $70 a barrel by the end of August, for a gain of 20%.
By Friday May 5, 2006, gold was trading at $686 an ounce, and oil was still at $70 a barrel on continuing tensions in the middle east, a weakening U.S. dollar, and inflation concerns.
Sounds familiar….except for the drastic increases in prices for gold and oil.
So what could be different this time? Gold is trading in a sideways range, and oil ditto, though oil has pushed up to $92 in the last three sessions from $87.50. Though that’s hardly the 20% increase that tensions in Egypt touched off a mere 6 years ago.
And now the instability that started in Tunisia is spreading.
King Abdullah of Jordan has just fired his prime minister after street protests in Cairo emboldened Jordanian citizens to take to the streets as well.
In any period of the last 30 years since the Bretton Woods agreement was terminated and gold was allowed to trade freely (more or less), the level of tension in the middle east has had a direct and meaningful impact of the prices of both gold and oil.
While oil is strengthening in price, gold is doing the opposite. There are a number of reasons for that, according to Midas Letter editor James West.
“The prices of both gold and silver are subject to the investment interests of so many diametrically opposed groups that volatility has become the only constant,” West said. “You’ve got the U.S. government and their collusive partners in Treasury and J.P. Morgan stacking up huge short positions on the futures side, and so because the spot price is determined by future contract interest, they are easily able to influence sentiment in the market. In other words, the spot price rarely reflects the true value of gold compared to the U.S. dollar. There is a continuous effort to optically discount gold relative to the U.S. dollar to try and make U.S. Treasurys more attractive to big sovereign investors.
To make matters worse, the sovereign investors who hold U.S. T-bills are sort of coerced into participating in the scheme, else otherwise see the value of their holdings go down. Its fraudulent and criminal, and if history is any indication, temporary.”
So does that mean gold is going to rise?
“Oh you better believe it,” said West. “This political fire that started in Tunisia, that has 10 million people, has now thoroughly taken hold in Egypt, where there are 85 million people, and is going to topple Jordan too, possibly. And Yemen is right behind. You can bet the Saudi’s are very nervous at this point. All of this is equivalent to immense pressure building for gold silver and oil prices. Gold especially could explode through $2,000 before the end of this year of this situation worsens much.”
Newmont Mining (NYSE:NEM) CEO Richard O’Brien agreed.
“We see gold goint to $2,000 an ounce in the next five years,” he said in an interview with CNN. “I think we have good legs on the bull market for the next 5 to 10 years.”
Barrick Gold CEO Peter Munk said at Davos on Friday that he felt global economic instability combined with political instability in the Middle East were likely to contribute very positively to a continuing rise in the gold price.
Link
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