by John Galt
November 14, 2012 20:00 ET
I may not be able to predict political outcomes but I can smell a major move in precious metals and geopolitical conflict a mile away. At this point in time, it is only logical to observe the situation in the Middle East and the soon to begin ground war in the Gaza Strip and start to extrapolate the potential move in precious metals.
To begin this story, I wish to observe the “bear” market period of the past year in the cash or spot gold market:
The market has been in a prolonged trading range and support held at $1500 which is amazing considering the attempts to break through and retest the $1260 to $1400 range over the time period and failure each time. Of course that failure was assisted by the Federal Reserve and the D.C. circus providing further indications that monetary inflation is the only solution to America’s problems.
In the chart above are two vigorous moves to the upside to attempt to break out back above the $1900 level. Both instead indicated a minor move in reality and the technical bounce failed as volume faded and the government continued to disappoint with policy manipulation which creates a deflationary or economic collapse scenario. The support that has been built though is now over one year long and elongated which indicates the next move in gold prices will be so extreme and shocking that panic buying, not panic selling, will be the rule not the exception. After prolonged base building, such as this past year, gold traditionally doubles, the problem this time is that it could do it in a matter of weeks thanks to a major international conflict possibly in the offing.
Thus the problems in the Middle East might well become the impetus for the next move. It is my estimation that for each attack on a major city using some sort of WMD either chemical, biological, or nuclear, that gold will move UP $500 per ounce in one day or less. At this time as I speculated on the radio last night and in these pages, the threat of the Islamist Syrian rebels obtaining missiles with nerve agent warheads and firing them on Israel disguised as regular Syrian military to invite a response is a distinct possibility. The idea that a nerve gas attack on Tel Aviv would be worth a $500 per ounce move in gold is not that far fetched, even if that move takes more than one day. The reason is the anticipated response from the Israelis, which would generate another major move in gold.
Such as the thermonuclear vaporization of Damascus and perhaps the Alawite strongholds of Hama and or Homs.
That would immediately generate a response from Hezbollah and accelerate the participation of major world powers in the region, including Egypt and Iran. The United Nations would be in abject panic and gold would skyrocket as the Arab Kingdoms of the region accelerate physical purchases as the world prepared for a major world war. Thus a $1000 move in one week might seem extreme, but considering the stakes and risk of a global conflict, the seller would have the power to name the price on any gold they wished to sell on a minute by minute, customer by customer basis. As each major city is struck by WMD’s, be it Beirut, Jerusalem, Qom, or Tehran gold could move $500 per ounce with each city being vaporized or destroyed.
If this conflict does not escalate beyond the Gaza Strip, odds are gold will stabilize within the trading range until the United States fiscal fiasco is resolved. Even though that seems a distant prospect at this point, resolution in either direction means gold can set a course up for its next target above $3000 per ounce at a slower, but more steady predictable pace. Unfortunately for those readers who have not purchased a buffer with precious metals, wars do not observe technical trading patterns nor any set schedule. This means that one night one could go to bed and wake up in the midst of World War III with little warning and little financial insurance for the decade(s) of economic instability which would follow.