Gold, Silver, Oil Will Spike To New Highs If US-UK Attack Libya

Mar. 1 2011 - 2:58 pm

You can’t keep precious metals down when the globe is agog over violent political change, the freezing of dictators’ assets in the US and Switzerland– and deep anxiety over the price of oil.

Gold and silver, led by crude oil, will spike if talks between the US and UK for joint military action in Libya take root. This threat to the Libyan oil fields and to peace in the region would have an immediate impact in commodity markets.

Remember 1980 with our hostages in Iran; gold rose to $800 an ounce (there was double-digit inflation– at least 5 times the rate today) and silver to $50 (the Hunts idiotically tried to corner the market)

We are not that far from the peak in gold- $1440 an ounce. Just another $10 an ounce spike is half the $20 an ounce we made up today so far. We are at a 30 year peak for silver, which has been acting even more positively than gold.

I don’t think this is the Bernanke market, as he made it clear today that inflation is just the 2% he wants, and that’s despite the horrific run-up in food prices. And he’s beaten off deflation with QE2. No knee-jerk connection between Bernanke and precious metals.

The connection for gold and silver is geo-political. My new rule of thumb for gold and silver; the more uprisings that lead to oil supply fears the more speculation will hive onto gold and silver. Or put it another way, as go oil fears, so goes money into gold and silver.

So, battles on the Tunisian- Libyan border, calls for public demonstrations in Teheran, unrest in Bahrain, Algeria that suggests the daisy chain moves ultimately to Saudi Arabia, Kuwait, and who-knows-where-else all add up to uncertainty about oil prices.

And uncertainty about oil prices– especially if they trend higher– suggest to me somewhat higher gold and oil prices.