How will this affect the markets, specifically commodities like gold and oil?
More than a decade after the wars in Afghanistan and Iraq were launched – not to mention the various strikes against Yemen, Pakistan and other countries initiated by President Barack Obama throughout his tenure as commander in chief – the United States is drumming the beats of war again, this time in Syria.
After it was alleged that the Syrian government, led by President Bashar al-Assad, launched a chemical attack against its own people, even though there are some suggestions that it was performed by al-Qaeda, the Western world, particularly the U.S., has been urging for an attack against the country, a growing prospect as Republican Senators John McCain and Lindsey Graham are backing up the president.
This has led to millions of Syrians to either prepare for a potential war or to flee the country. In the U.S. and other developed countries, meanwhile, investors are becoming concerned about the stock market as oil, gold and other commodities are inching upwards over fears of a U.S.-led attack against Damascus.
If an attack occurs then expect commodities to rise, according to legendary investors Jim Rogers and Marc Faber. Rogers, speaking in an interview with Reuters, suggested that oil and gold could go “much, much higher” because the U.S. is “desperate to have a war.”
“I own oil, I own gold, I own things like that and if there is going to be a war…they’re gonna go much, much higher,” said Rogers in the interview. “Stocks are gonna go down, some of the markets that I’m sure are already going down, commodities are gonna go up. I mean, yeah, some of the things I own all make a lot of money. It’s, I’m not particularly keen on war, I assure you, but it sounds like they want it.”
He went on to note that strange elements transpire in war and that there could be an array of unintended consequences that could hurt all involved parties. “But I do know that throughout history whenever you had war, things like food prices have gone up a lot, energy prices have gone up a lot, copper price, lead prices: you know, all of these things go up a lot whenever there’s been a war in the past.”
Another contributing factor to the price of gold is the Federal Reserve’s tapering of its quantitative easing measures. The latest economic news disappointed economists and suggests that the markets are unsure about the central bank’s bond-buying program. Akin to what David Stockman, former budget director under President Ronald Reagan, explained earlier this year, the stock market depends very much on the Fed’s stimulus efforts.
During the Tuesday trading session, gold exceeded the $1,400 per ounce mark (at the time of this writing), while silver also inched towards the $25 per ounce threshold. Oil also increased close to $110 per barrel.
Speaking with Hard Assets Investor last week, Marc Faber, the editor and publisher of the Gloom Boom & Doom Report, projected the rising price of gold due to not just a potential war with Syria but also the rising debt levels and monetization policies performed by central banks worldwide.
“Looking at the fundamentals, looking at how debt will continue to increase and how central banks will continue their monetization not only in the U.S. but on a worldwide scale, I assume the price of gold will trend higher,” said Faber. “Most likely we’ve seen the lows below $1,200.”
Much like other gold bugs and some financial experts, Faber made a point about the correction of gold and correlated it with past market events, such as in the 1970s and in the 1980s.
“We have had a meaningful correction,” explained the contrarian investor. “From $1,921 in September 2011 to less than $1,200 at the bottom is a fairly large correction. But in longer-term bull markets, these kinds of corrections do occur. We had a 40-50 percent correction in 1987 in equity markets. But the bull market lasted until the year 2000.”
On top of the issue with Syria, Washington will soon deal with another debt ceiling crisis next month. Treasury Secretary Jack Lew noted late last month that the U.S. federal government will be hitting the debt limit in mid-October. In a letter to Congress, Lew urged officials to increase the amount of money the government can borrow.
“Congress should act as soon as possible to protect America’s good credit by extending normal borrowing authority well before any risk of default becomes imminent,” Lew wrote in a letter. “If investors should become unwilling to loan the United States money, the United States could face an immediate cash shortfall.”
The present debt ceiling is $16.7 trillion.Courtesy: Andrew Moran
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