An unexpected specter is haunting the streets throughout the capitals of North Africa and the Middle East. Although revolution has been quelled for many years, dollar devaluation has caused prices of basic goods to soar in emerging economies like these. Young people are unemployed and face little opportunities in autocratic societies. Tens of thousands of young, leaderless Arabs are rioting in the streets demanding an end to pro-Western leaders. Egypt’s stock market (EGPT) has been shut down as reports are showing that the rioting will intensify, and many people and businesses are fleeing the country.
This hunger for change is sweeping across the Arab world and has already begun with the ousting of the president in Tunisia. Today, older protesters are joining the youth in Egypt and will face tear gas, bullets, and beatings as the riots intensify. Many fear that the old pro-Western despots will fall and new radical anti-Western governments will take control. In truth, the protests are happening throughout the Middle East but often they are being suppressed by iron-fisted governments. This is the shocking and unexpected news that is arising seemingly out of nowhere and is sure to affect our commodity investments.
Readers should be aware this could well be the surprise “swan” of 2011; it could be what galvanizes the charts of yellow (GLD) and black gold (DBO). Fear, crisis, and the inevitable flow of capital out of such turbulence compel money to flee to the stability of precious metals. This may be a game-changer in 2011; the US is not getting overly involved and social unrest is increasing throughout the Middle Eastern world. Many fear that these countries — which are suffering from soaring inflation and high unemployment — may come under the control of fanatical parties with ties to radical organizations. It is important to monitor the ETFs that follow this area, such as the Market Vectors Gulf States Index ETF (MES), WisdomTree Middle East Dividend (GULF), and SPDR S&P Emerging Middle East & Africa (GAF). This economic and social unrest could cause contagion throughout the Middle East; the major shift in the balance of power could cause oil prices (DBO) and gold prices (GLD) to soar.
It is too early to tell what’s caused the seemingly spontaneous uprising of youth in the Arab world or what role the “Byzantine Hand” of Iran is playing to ferment all of this. Consider that Tunisia is in danger of being overthrown. Egypt is ablaze with hate for the ailing President Mubarek; his son, Gamal, who is supposed to be his designated successor, fled Cairo to England with his wife and daughter on Tuesday. Lebanon has been taken over by Hezbollah, which is directly armed and financed by Iran. Yemen, Morocco, Algeria, Libya, and Jordan are all facing similar protests sparked by difficult economic times. Emerging economies in the Middle East are having to deal with massive unemployment and soaring costs.
Tehran would like nothing better than to add Middle Eastern insurrection to the strains that already beset the United States such as high unemployment, bankrupt cities and states, and a declining fiat currency. We do know that Iran dreams of reviving the centuries-old “Great Caliphate.” This is an empire stretching from North Africa to Persia. I will be carefully watching the effect that this ongoing drama will have on my firm’s mining stock selections and bullion investments. For the past few days I have been warning about a reversal in gold (GLD) and mining stocks (GDX). Could revolution in North Africa and the Middle East be the spark in precious metals and for oil’s next leg higher?
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