The Middle East Will Go Up in Flames

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Faber: ‘Middle East Will Go Up in Flames’… ‘Have To Be in Precious Metals and Equities’

GoldCore

Gold’s London AM fix this morning was USD 1,685.60, EUR 1,282.24 and GBP 1,068.26 per ounce.

Yesterday’s AM fix was USD 1,698.00, EUR 1,286.17 and GBP 1,073.60 per ounce.

Gold fell $6.30 in New York yesterday and closed above the $1,700/oz level at $1,705.30/oz. Gold fell in Asia prior to further modest price falls in Europe which saw it fall below yesterday’s inter day low of $1,694/oz. Gold is now trading at $1,686.40/oz.

Gold’s short term technicals are poor and a further correction to or below the 200-day moving average at $1,670/oz is possible (see Barcap view below). However, it is worth noting that gold’s weakness has coincided with recent dollar strength and gold has not fallen as much in euro, pound or other fiat currency terms.

The fundamentals of significant macroeconomic, systemic and monetary risk will support the precious metals. As will the increasingly risky geopolitical situation – the risk of which is not priced into markets just yet.

Swiss money manager and long term bear Marc Faber, aka "Dr Doom", says political risk in the Middle East has increased significantly with war between Iran and Israel “almost inevitable”, and precious metals and equities investments offer some safety.

"Political risk was high six months ago and is higher now. I think sooner or later, the U.S. or Israel will strike Iran – it’s almost inevitable," Faber, who publishes the widely read Gloom Boom and Doom Report, told Reuters on the sidelines of an investment conference.

Brent crude traded near $123 per barrel in volatile trade on Tuesday on fears of a disruption in Iranian supplies. Israeli Prime Minister Benjamin Netanyahu showed no signs of backing away from possible military action against Iran following a Monday meeting with U.S. President Barack Obama.

"Say war breaks out in the Middle East or anywhere else, (U.S. Federal Reserve chairman) Mr Bernanke will just print even more money – they have no option…they haven’t got the money to finance a war," said Faber.

"You have to be in precious metals and equities … most wars and most social unrest haven’t destroyed corporations – they usually survive," he said.

He said that Middle East markets had largely bottomed out, though regime changes from the Arab Spring revolutions were unlikely to be investor-friendly.

Faber said that in uncertain times, investors had to reconcile themselves to volatility.

"If you can’t live with volatility, stay in bed," he said, pointing out that even cash [sic].

The 66-year-old, who has earned the moniker "Dr Doom", earlier told the conference that the likelihood of war in the Middle East was boosted by Western powers’ imperatives of keeping China in check, given its dependence on Middle Eastern oil.

"The Americans and the western powers know very well they cannot contain China economically…. but one way to contain China is to switch on and switch off the oil tap from the Middle East," he said.

"I happen to think the Middle East will go up in flames," he said.

Reprinted with permission from GoldCore.

Dr. Marc Faber [send him mail] lives in Chiangmai, Thailand and is the author of Tomorrow’s Gold.

© 2012 GoldCore

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