SAN FRANCISCO (CBS.MW) - The possibilities of war or coup in the oil-producing nation of Iraq have financial gurus coloring their forecasts in shades of geo-politics.
Many of those shades are in black for crude oil and gold (for bullion).
"The action in the crude oil markets is within one hard-hitting piece of news of breaking decisively above $31 per barrel, and starting a stampede toward the $40 area," says Joseph Duarte, author of "Successful Energy Sector Investing" and a Dallas-based fund manager.
Higher oil prices, even brief rallies, almost always rattle the stock market. Higher crude-oil prices would come hand in hand with a falling dollar. In turn, stocks tend to drop when the dollar, probably the purest geo-political gauge, falters.
"The dollar will be highly volatile as traders handicap the chances for an attack on Iraq and its consequences," says Duarte, who recommends great caution for those in the stock market. The dollar this year is already down 10 percent against the currencies of its major trading partners.
Veteran forecasters, many of them long-time editors of financial newsletters, say a U.S.-led invasion or coup would wreak havoc in financial markets, with much damage to stocks and the U.S. dollar and possible strong gains for gold:
*"There are an uncommon number of safe-haven factors working in gold's favor right now, including a potential stock market crash (maybe), a further plunge in the dollar (likely) and war with Iraq (almost assured)," says Brien Lundin, editor of the 31-year-old Gold Newsletter Alert and organizer of the New Orleans Investment Conference 2002 (http://www.neworleansconference.com/).
*"An Iraqi war is almost surely going to drive oil into a (higher price) spike," says Ian McAvity, editor of Deliberations on World Markets newsletter, which is in its 30th year. "Flooding the market with oil from captured Iraqi oilfields seems a pipedream that totally ignores risks of destabilizing Saudi Arabia other regional sources."
*"While initial action in Gulf War II may be taken by the U.S., we expect a similar price spike (in gold) as tensions heat up, but this time the fear will not be Saddam's army, but his possible early use of chemical weapons," says John C. Doody, editor of Gold Stock Analyst.
*"This Iraq attack would be different in that there are already festering wars in the Middle East, Kashmir and Chechnya," says James Dines at The Dines Letter, which has been reporting on financial markets since 1961. "Amr Moussa, secretary general of the Arab League, issued a chilling warning that an American assault on Iraq would 'open the gates of hell in the Middle East because you could never tell the results.'"
Almost off the radar screen of Wall Street is the amazing rally in a number of commodities, including wheat, sugar and corn. Commodity prices, as measured by the Commodity Research Bureau's benchmark gauge of about 20 products (1864498), has gained almost 15 percent this year after years of torpor. Higher prices for hard assets, be they agricultural, metal or energy-linked, is usually a sign of looming turmoil in financial markets. See: Hard Assets Send Signals. http://cbs.marketwatch.com/news/story.asp?siteid=mktw&dist=nwtwatch&guid=%7BB1D334AD%2D4D26%2D4A70%2DBE72%2D2DE9C6DA8DCE%7D
Gold, at the same time, has become the second-strongest investment class of the year, after Treasury bonds. On Monday morning, the spot price of gold was down $1.50 to $315.10 an ounce. Many forecasters say they expect the gold price to reach $330 an ounce this year (its high thus far in 2002) and then launch a rally into the $350 range.
