The Iraq Surprise

The sweep across northern Iraq by radical Islamists seems to have caught Iraq, the U.S. and its allies off guard and has thrown an element of uncertainty into world affairs.

Gold took advantage of the conditions and zoomed up more than 1%, although it has since fallen back.

The dollar weakened as well, not due to the Middle East developments but because of softer-than-expected retail sales and labor weakness. Retail sales grew about half the amount economists had been predicting, 0.3% versus the anticipated 0.6%.

As we might have guessed, oil soared, rising well over 2%.

What will happen now in Iraq and Syria is anyone's guess. The group precipitating the fighting is called ISIS, and seems intent on establishing a pan-Sunni-Islamist regime in eastern Syria and northern Iraq.

Probably what will ensue is a long-term civil war, since there are many other interested parties fighting for diametrically different aims. The Kurds are among those groups, and they seek autonomy from Iraq, Syria and Turkey.

The Sunni's may have the edge through surprise at the moment, however, Shiites are the dominant religio-political group in Iraq, and of course, they have the ear of Iran, immediately to the east.

Nevertheless, the outlook for now is instability and that can be good for gold, although as we saw during the Ukraine-Crimea crisis, such effects can be startlingly brief, though intense.

The instability in Iraq also managed to take the starch out equities, leaving the three U.S. indices off between 0.6% and nearly 0.8%. The confluence of events and weak data may be just the thing some traders were looking for to inflict a more serious correction.

Hold on to your hats.

As always, wishing you good trading,