Messed Up Mesopotamia

Six weeks ago, the crisis in Ukraine was driving gold higher until cooler heads prevailed. The last few days, Iraq has been the driving force behind a dramatic price in gold, with some analysts predicting a price of $1300 in the near to middle term.

However, like Ukraine, and Syria before it, the situation in Iraq is going to go to a low boil in the form of a protracted struggle, a civil war.

So, the effect on gold, while certainly good for bulls in the short run, will eventually wither as a sort of violent stasis sets in.

Curbing some of the present enthusiasm for gold is the upcoming meeting of the FOMC on Tuesday and Wednesday of next week. It is doubtful, even given some bumps in the road on the U.S. economic recovery, that the Committee will alter its tapering of asset purchases.

We are liable to get much saber rattling from rate hawks, who, despite published evidence to the contrary regarding improving economic vitality, think sooner is better than later for an interest rate hike. The reality is that the rate hike will appear when Chairwoman Janet Yellen and her close allies think it's time to rein in the economy.

We may not have to wait for a rate increase to occur to slow down the world economy. The Iraq crisis is driving energy prices up precipitously now. Although it should be remembered that during the 10-year war in Iraq, that country's oil spigot was entirely shut off for the most part.

Ultimately, the fundamental issues of jobs and inflation will govern any Fed moves on the horizon. Absolutely we must keep an ear tuned to extramural statements by hawks. But remember who's captain of the ship.

As always, wishing you good trading,