Monday, July 17, 2006

Blog of the Week: Dismally, as it relates to the markets

What tensions in the Middle East would mean to markets.

Israel responded to Hezbollah's cross boarder attacks into Lebanon yesterday sending a few waves throughout the world. The geopolitical implications of such attacks, which included a direct attack on Beirut Airport, are quite huge, really. Iran and Syria have both responded by declaring any new attacks by Israel would be an attack on all of Islam.

Setting aside all the political aspects of this kind of move, let's focus on the financial implications as this blog would normally do.

The question really is: Will there be any kind of escalation from the attacks we are already seeing? Israel has responded to attacks from Hezbullah into Lebanon. Iran has made it clear that any new attacks on Lebanon would mean a war. Well... this is the third day of attacks. So, it's reasonable to believe that there is going to be an escalation. And, to be honest, this could get ugly.

With that, there are several prime financial instruments that are involved here: Gold, oil, bonds, and equities. Then there are the currencies.

Gold is an obvious safe haven choice during any kind of escalated conflict. For centuries, the shiny metal has been sought out as the safest place to move assets during times of crisis. The price of gold has already been moving lately. Now, sitting at almost $670.00, it's moved up about $100.00 in the past two weeks or so. This trend looks to remain in tact. Escalations would continue to push this safe haven investment higher and higher. We could easily see prices above the highs we just saw a couple of months ago.

The second item is oil. This region is the heart of oil country. Any disruption in the flows would mean...

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