Geopolitics, gold and the oil price

Instability in Nigeria is the present driving force behind oil prices, now back at a nine-month high, while gold seems to have turned a corner with the highly significant changes in the US bond market. But let us not forget that a real spike in both the oil and gold price is very likely to require a particular constellation of geopolitics.

If commentators have become a little war weary like the general public that should not distract investors from the obvious and glaring conclusion that further geopolitical upsets are almost inevitably just around the corner.
This week Kind Fahd of Saudi Arabia highlighted the major problems now evident in Gaza, Lebanon and Iraq which he said might turn into a global conflagration. What certainly looks likely is that things are going to get worse before they get better in the northern Middle East.

The stand-off with Iran over its nuclear program has also not gone away. The possibility of Israel choosing to bomb Iran is still there, and the thought of Iran getting a nuclear weapon is still anathema to most US politicians. And diplomacy could suddenly be replaced by military action, particularly in the event of accidental engagements in the Gulf.

If the Straits of Hormuz was closed to oil tankers by a conflict with Iran then world oil prices would likely shoot to $150-200 a barrel. At the same time, the gold price would spike to levels way beyond its 1980 high of $850 an ounce.

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