With the Mideast in turmoil and potential oil shortages possible, the uncertainty is driving up the cost of all precious metals and especially silver (3/31/11 price as of 12:50 EST, $37.71). Simultaneously, the Federal Reserve (heretofore referred to as the Fed) seems to be monetizing the national debt with the administration's blessing. With much of it held by the People's Republic of China (PRC) and with their own huge reliance on Mideast oil, there's nary a word of protest (publicly, that is) from Beijing. Both economies rely on petroleum supplies with the PRC being in the unenviable situation of not being able to produce any petroleum locally.
Precious Metals, Petroleum Shortages and Mideast Unrest
This is almost a predictable story. With war in the Mideast, instability with petroleum supplies and a weak US recovery, as well as the Japan nuclear disaster, it is remarkable that conditions on the equity markets remain almost upbeat. The current value of the dollar is falling, but public attention is distracted to the current situation in Libya, yet there are also real signs of instability in some of the other major Mideast Oil producing nations. Instability is the yeast that pushes precious metals to new highs. As long as this condition remains, expect precious metals to be a safe bet.
Certainly, with the Dow still rising, there is some doubt that precious metals will also rise. The equity markets are not always the best leading indicator of rosy economic futures. It is the opinion of this writer that the expectations of additional gains in the stock market will soon give way to pessimism as energy prices soar. When that happens, expect prices in the precious metals markets and especially silver to follow petroleum futures (see chart). This is based on the likelihood that much of the so-called democratic opposition, demonstrations and uprisings to the current regimes in place within the Mideast probably contain some elements inimical to the strategic interests of the U.S. and to the rest of our trading partners. If those elements ultimately gain control of some of these nations, particularly OPEC nations, petroleum prices could hit unprecedented levels.
Precious Metals Futures, with Silver Sparking the Rise
In the midst of the Mideast unrest and with steps seemingly being taken to monetize the debt, the U.S. dollar could plummet significantly. This makes investment into precious metals an obvious choice. The concept of silver being a premier precious metal investment is based upon the fact that traditionally silver's pricing relationship to gold has always been much lower. If anything, one can view the ever so slight rise of silver against gold as regaining its historical investment importance.
If the U.S. economic recovery starts to falter and if the worst scenarios really do take root in the Mideast, expect the rise in precious metals to be an explosion, in terms of the dollar. This may happen regardless of the perfidy of the Fed and the continuing failure of Japan to cap its nuclear reactors. There are too many dangerous economic balls that are in the air and many may fall to the ground with dire circumstances for the U.S. economy.
Nick Schklair - Nick Schklair, author, writer and business consultant has published a work on business startups in today's economy.
