Gold: The Winner in the Growing Oil War?

My most influential professional and life mentor gave me some valuable advice on how to read people.

He said you can size up almost everyone by examining his or her enemies, and understanding what’s behind the animosities.

I offer this same advice to you to help you gain insight into the markets and what’s driving them. This week, we’ll apply this insight specifically to the oil market.

That’s because alliances in the oil patch, whether friendly or forced — and the growing hostilities between the players — have a direct effect on us as consumers and investors.

Make no mistake, there’s a growing global oil war. We may also be looking at an incredible opportunity to profit from an unexpected winner.

With Friends Like These …

I’ve been among a minority of energy analysts reporting that the principal target of Saudi Arabia’s price war isn’t so much against North American fracking, but instead directed at crippling Russia and Iran.

Why does Saudi Arabia want to put its fellow oil producers into such a desperate state? It hopes …

First, that Russia and Iran will abandon its monetary and military support for Syria, and help negotiate the installation of a more constructive, inclusive government.

In doing so, Saudi Arabia hopes it would help put an end to the civil war, and better confront the radical Sunni branch of the Islamic State.

Second, to deprive Iran of the needed funds to continue with its stealth programs to build intercontinental missiles and nuclear weapons.

Will the Saudis Soon Get Their Way?

Vladimir Putin continues to talk a good game in the aftermath of the recent Paris terrorist atrocities and the planned ones in Belgium.

He is calling for better cooperation against terrorists … all the while funding and arming terrorists in both eastern Ukraine and the Middle East.

Many believe Putin is an evil genius. But by openly playing all sides, he continues to reveal that there is no real genius behind his strategy. After all …

  • The ruble is in danger of a spectacular currency collapse.
  • The Russian economy is dipping into a deep recession and the country legitimately faces the real prospect of a genuine depression if some alleviation of the western sanctions isn’t negotiated.

Russia isn’t the only country showing signs of economic fatigue. Its allies are feeling the ripple effects …and they’re not happy about it.

Iran, Russia’s ally and the Saudis’ principal enemy, has just this past week begun to threaten Saudi Arabia and the other OPEC oil kingdoms.

Reuters quoted Iranian President Hassan Rouhani in a speech broadcast on state television as oil plunged to near-six-year lows on international markets ….

“Those who have planned to decrease the prices against other countries will regret this decision.

“If Iran suffers from the drop in oil prices, know that other oil-producing countries such as Saudi Arabia and Kuwait will suffer more than Iran.”

Here’s how I interpret this statement …

If Saudi Arabia and its OPEC allies sell much more oil than Iran, they may be made to pay in blood. After all, Iran has a multi-decade history of lethal belligerence toward Sunni monarchies.

Judging Saudi Arabia by its bitterest of enemies, though, you have to admire its resolve.

After all, this is a multi-front war. And the Saudis are anything but a county that fits our definition of free progressive democracy.

Plus, they are dealing with the huge problem of systemic fraud thanks to a royal system of nepotism and cronyism.

But all told, they remain a convenient and well-enforced ally for the West.

I predicted in my 2005 book “The Global War for Oil” that I envisioned a war for control of the flow of oil. The danger I foresaw included military confrontation by proxies of the major parties of oil producers and major consumers of oil.

Some believe that there are no winners in war.

The oil war, however, has recently produced an intriguing winner: gold.

A decade ago, I foresaw oil prices spiking as the conflicted heated up, and I said rising gold prices would lead oil higher.

That sounds a lot like what we’re seeing right now.

Will Gold Lead Oil Higher This Year?

Recognition of an oil price war — while terror and mayhem continues in the Middle East in close proximity to the region’s largest oil producers — has finally started to manifest in higher gold prices.

With gold stuck in neutral for the past year, some investors have shifted their focus to trading risk assets like stocks … driving them to a series of new all-time highs.

Gold has typically been a barometer of the potential and seriousness of the threat of existing and potential dangers. This has, however, been short-circuited by the rise and strength of the dollar the past few years.

Investors have been piling up their greenbacks and ignoring gold. Now it appears the faith in the U.S. dollar as the sole oasis for safety may be showing signs of fading.

I’ve been telling my subscribers to maintain a position in gold even while the rest of the world has been focused on the greenback.

That’s because we are always, in this day and age, at risk of a “Black Swan event” that could double oil and gold in the blink of an eye.

Consider these potential upside catalysts for the yellow metal …

  • North Korea will reportedly posses as many as 20 nuclear weapons by the end of the Obama presidency.
  • The safety of Pakistan’s nuclear arsenal was proffered by President Obama as something that “keeps him up at night.”
  • Iran’s race to produce nukes has been well-documented.
  • Both the Israelis and Saudis are armed with nuclear-tipped missiles.

Each of these worst-possible scenarios — ignited by fear and fanned by speculation and fatalism — would be enough to send gold higher.

However, we are now at the point where we may not even need a sudden, enveloping “Black Swan event.”

After all, enough money is moving into gold, which rests not far from the $1,000+ average production cost, that we might be at the resumption of the bull market after a few years of correction.

Here’s What the Gold Charts are Telling Me

Four out of five of the sentiment indicators I have found the most reliable are now bullish. Let’s look at a chart of the iShares Gold Trust (IAU).

A crossing of the $12 resistance level looks like a major BUY signal.

IAU ended last week at $12.35, so now we need a weekly and then a monthly confirmation.

This would confirm that, after a deep sleep, the bull market in gold and precious metals may once again be under way.

I’m going to keep a very close eye on how gold trades in the coming weeks and let you know what I’m seeing.

A ‘New, New Bull Market’ for Gold?

A confirmation of a “new, new bull market” trend in precious metals doesn’t necessarily portend a decline in the U.S. stock market.

Consider that, for the past several months, we’ve seen gold trade in lockstep with stocks — an occurrence that has happened so many times, it is no longer surprising.

But even as investors start to turn back to gold, it doesn’t take a lot of trading action to make a big difference.

In fact, it would only take a 2%-3% diversification in the sea of money to push gold back above its all-time historic highs.

I think it’s time to get ready to see that happen.

My trading partner Geoff Garbacz and I are initially expecting a modest breakout, and we’ll be prepared to help you benefit. And if the bull takes off and runs higher, we’ll help you prepare for that, too!

Always watching your chickens,

James DiGeorgia

Your thoughts on “Gold: The Winner in the Growing Oil War?”

  1. Putin is not an angel, but mis-characterizing his support of Eastern Ukraine as support of terrorism is not accurate. It is the CIA and western bank supported, fascist, illegal government of western Ukraine being guided into attacking eastern Ukraine that is the real terrorism.

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