Iran threat an evolving issue

About a year ago gold prices rose as a result of escalating fears that Iran was developing nuclear weapons, though the threat seemed some time off. The latest news is that Iran has developed and successfully tested a long range missile capable of reaching Israel. the implication is that unless their nuclear program is terminated, they will have the capability of delivering a nuclear weapon. Clearly we are going to see an escalation in tensions between the USA and Iran, and we cannot dismiss the possibility that Israel will not take unilateral action.
The implication for the markets are:
1. Possibility of the USA scaling up its war machine - thats bad for the USD and the US deficit
2. More USD floating around the world means more inflation
3. Stronger gold (precious metal) prices are inevitable

4. A fall in market confidence can also be expected, particularly since the oil price will take off, and that will quash retail sales around the world.

On the strategy side, the US might take heart from the fact that they have a missile defence system. Will they rely on that? The other problem is the threat that Iran can terrorise the world by threatening to cut oil supplies. Iran is a significant exporter of oil, and with tight supplies, there is no question that threats by Iran will push oil prices higher. Of course it would only hurt non-Western countries since no supporter of the USA would buy from them. Given the sanctions against Iran, the country would benefit from higher oil prices (15% of its GDP) since its economy cannot benefit from any other exports. So intimidation works for it. The President of Iran is universally disliked in his country, mostly because of his poor efforts to improve the economy. Sanctions must carry a lot of the blame.


Clearly the oil and precious metal stocks are the best to consider.

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Andrew Sheldon www.sheldonthinks.com