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Do Oil, Gold Sniff a War?

By: Rick Ackerman, Rick's Picks
Posted Sunday, 11 May 2008 | Digg This Article | Source: GoldSeek.com

Rick’s Picks

Monday, May 12, 2008

“Phenomenally accurate forecasts”

Unless your were trading oil futures on Friday, the markets might have seemed pretty dull. A barrel priced for June delivery hit a new record high of 126.27, and we shudder to think what that might mean at the pump. So, what has been driving crude’s spectacular rise? Until a few weeks ago, there was a simple answer to that question: the dollar’s decline. Oil producers and traders were simply repricing fuel to compensate for the dollar’s shrinking purchasing power. However, since mid-March, both oil and the dollar have been moving higher, with the dollar gaining about 5% during that time, oil about 25%.

The latter really began to take off a week ago, and it would now appear that the supposed civil war in Lebanon is the reason. We say "supposed" because that’s the way the news media have characterized it – as an escalating battle between the Lebanese army and Hezbollah militiamen backed by Iran and Syria. But while Hezbollah has been trying to oust the pro-Western government of Prime Minister Fouad Siniora for 18 months, the current, major escalation of violence holds serious implications for the entire region.



Photo Courtesy of Bloomberg

Our Berkeley-based colleague Larry Amernick offers a timely perspective on the conflict in his latest newsletter, a biweekly with a global point of view that is geared toward traders and investors. (Click here for a free sample.) Because the picture we get from Larry is quite different from the one the major news outlets are describing, we will quote him at length:

"The major media outlets have so far ignored this vital and important story. What triggered the violence was Hezbollah’s blatant attempt to create a ‘state within a state.’ Recently, Iran shipped and was attempting to install a modern communication and surveillance system for Hezbollah. The Lebanese central government saw this as a strategic threat to its sovereignty.

Beirut as ‘Iranian Port’

"For the last two days, gun and grenade fire could be heard all over Beirut. Both sides were trying to control the airport. Strategically, Iran is attempting nothing less than the takeover of a Mediterranean port. Hezbollah is a creation of Iran and takes its orders directly from Teheran. For its part, Syria has remained conspicuously silent during the conflict. In response, NATO has been moving sizable naval forces to the area and the U.S. just added the Abraham Lincoln carrier group to its forces in the Persian Gulf. Additional naval forces that could be headed to the region are currently involved in the Myanmar rescue operation.

"The wild card in this version of the ‘great game’ is Israel. Next week, the nation will celebrate its 60th birthday. President Bush, as well as many other heads of state, will be in attendance. At the same time, Palestinian groups in Lebanon have threatened to send over 100,000 people to tear down the Israeli-Lebanese border so they ‘may return to their former homes.’

Gold Barometer

"Hezbollah may provoke an Israeli reaction by firing over the border during this staged event. At the same time, Hamas may send thousands of its supporters to attempt to break through Israel’s southern borders. Again, Iran is the mastermind of this scenario. While attention is focused on Israel, Iran will use the turmoil to consolidate its hold on Lebanon. Control of the Eastern Mediterranean is Iran’s goal and the recent sharp increase in the price of oil is the reaction to this brewing crisis. The outbreak of war in Lebanon has also contributed to a rally in Gold, which is a barometer of fear."

For our part, we’ve been predicting that the price of oil will reach a potentially important high near $131 (basis the June futures contract. The Amernick Letter expects a top at 129.66 followed by a correction to 105.50.) However, if the shooting match in Lebanon continues to escalate, we would not be surprised to see quotes for oil and gold climb above these targets. Please note that our minimum projection for the latter – again, basis the June contract – is 902.50.

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