Gold, Oil and a Major Terrorist Attack

Clive Maund

There is widespread apprehension about a major terrorist attack or attacks in coming months, highlighted by a television appearance by John Ashcroft in the US a week or so ago, in which a "rogues gallery" of the "Wanted" was paraded in front of the cameras. While many fear that an attack will happen in the US, I believe it is much more likely to happen in the Middle East, in Saudi Arabia to be specific, for reasons I make clear below.

But first I paste in below a couple of paragraphs from a most intriguing article in Safehaven, which was brought to my attention some days ago. Here is the full Safehaven article. I must emphasize that the deductions in what I have written following are in no way based on the Safehaven article, but I think you will agree that the next couple of paragraphs are very interesting in the context of what follows, and vice versa.

Next two paragraphs from Safehaven article, dated 30th May 04:-

Let me just say from the outset that the Federal Reserve has confirmed our Stock Market Crash forecast by raising the Money Supply (M-3) by crisis proportions, up another 46.8 billion this past week. What awful calamity do they see? Something is up. This is unprecedented, unheard-of pre-catastrophe M-3 expansion. M-3 is up an amount that we've never seen before without a crisis - $155 billion over the past 4 weeks, a $2.0 trillion annualized pace, a 22.2 percent annualized rate of growth!!! There must be a crisis of historic proportions coming, and the Federal Reserve Bank of the United States is making sure that there is enough liquidity in place to protect our nation's fragile financial system. The amazing thing is, the Fed's actions mean they know what is about to happen. They are aware of a terrible, horrific imminent event. What could it be?

One can draw no other conclusion except that the Fed is acting irresponsibly in its managing the money supply, in fulfilling its duty to "maintain a stable currency." I reject the notion that the Fed is acting irresponsibly. No, something is up, bigger than we have ever seen in the history of the United States. Let me ramble. Perhaps they simply see the ominous technical landscape we have been warning about in recent issues, and are attempting to pull out all the stops to avert the predicted crash. The recent rally in just about everything is similar to 2003's market behavior when the Fed pumped massive amounts of liquidity into the system during the first half of the year. This time seems different. The amount of liquidity is too large. The Fed is deflating the value of the monetary base by a fifth! Why are they willing to do this? Wisdom says something bad is up - big time.

END of Safehaven excerpt

A major crisis could well be a lot closer than many people believe possible. Saudi Arabia is in a parlous state, in terms of political stability, and the price of oil, which has been steadily rising for a long time, is in position to spike, and I don't mean by $10. It could go to, say, $80, maybe $100, in the event of a massive terrorist attack in Arabia. Historically, gold and oil have tended to move in tandem, and a crisis of the proportions I am talking about could well result in a spike in gold too, to say $500 - $600, perhaps more.

Quite obviously, Saudi Arabia would be unable to cope with the aftermath of such an attack, and would clearly require assistance from friendly countries such as the UK and US, and would be in such a hapless condition that it would probably appreciate having its vast oil resources managed by the UK - US axis on its behalf. Fortunately, a large contingent of axis troops just happen to be in the area on other business, so the troops, although spread thin, would be spared a long journey with its attendant jet lag. It is also a happy coincidence that a large number of US supply and logistics bases have sprung up all over south central Asia in the time following the collapse of the Soviet Union, many in former Soviet Republics. This will greatly facilitate assisting Saudi Arabia in its hour of need.

The gargantuan consumption of - and dependence of - the US on oil is partly the result of continuous heavy lobbying by the major oil companies of members of congress for decades, the purpose being to minimise the national public transport system, in order that consumption of oil, and thus profits for the oil companies, could be maximised. As a result, many communities in the US would cease to function without personal transportation and affordable gas. When it comes to securing oil supplies it is therefore prudent for the government to leave nothing to chance, and in this context the wisdom of constructing a comprehensive network of supply and logistics bases for forces close to the Middle-East oilfields becomes abundantly clear.

The ideal solution to any potential supply problem, of course, is to directly, or indirectly through appointees, control the supply source yourself. This is already the case with the small Gulf States such as Dubai, Kuwait and the UAE, which are semi-westernised and effectively client states of the major oil consuming countries. Afghanistan has no oil, or very little, but has the advantage of flanking Iran, and was therefore worth taking as a preparatory measure. Iraq has huge oil reserves and is therefore a major prize, with the additional advantage of being the western side of the pincer movement around Iran, Afghanistan being on the eastern flank. Another not inconsiderable benefit of controlling Iraq is that it will only take a few extensions to the major pipelines leading west and a huge quantity of oil will flow straight into Israel, the 3rd country of the US, UK, Israel axis. Saudi Arabia, although reasonably co-operative, is unstable and apparently a hotbed of fanatics, so clearly, in the event of a major convulsion in this country, either as the result of a revolution or a massive terrorist event that possibly disrupts the oil industry, the ideal solution will be to come to its assistance and relieve it of the burden of managing its own affairs, particularly its oil industry, in difficult circumstances. After that Iran can look forward to being in the news.

We will now shift our focus back to the effect of these possible - or likely - developments on the gold price. Obviously a major terrorist assault on the oil facilities in Saudi Arabia, should it occur, will result in a huge spike in oil prices, the charts for oil being already primed for such a move, and the attendant hysteria can be expected to produce a spike in the precious metals too. A collateral effect will be vastly improved electoral chances for George W Bush, who will be able to label John Kerry as a wimp. The "War on Terror" will go into overdrive, with unlimited funding and a raft of new regulations will be rushed through, which US citizens will not only need, but will cry out for, for their own protection. Implementation of the draft can probably wait until 2005, after the election. But what then? - will oil and gold prices settle down again after the attack and after the axis forces move in to assist? This is a very big, important question, and one that hinges very much on the extent to which the local populations in the Middle East are prepared to cooperate with their new democratic governments. We have seen in Iraq that many of the indigenous population do not appear to share the axis vision for the new democratic "free" Middle East and have been very un-co-operative. This lack of appreciation by the local population of the extensive efforts being made by axis powers to bring democracy and freedom to their lands could be a major stumbling block going forward, as there is the real possibility that they may not confine themselves merely to expressing their disapproval at polling time. Troop numbers may be totally inadequate for the situation - they are already inadequate in Iraq - and therefore there may be no choice but to implement the draft in the US and possibly in the UK too. Young men from other coalition countries, such as Australia and Poland, who are seeking adventure and excitement (in temperatures of 50°C) may also be encouraged to come forward.

However, if everything goes to plan, axis powers will finally be able to turn to the other major world trading blocs, such as Europe and China and India, with a broad smile and say "You want oil? - how much are you prepared to pay?" It's at this moment that all the countless billions spent on Aircraft Carrier fleets, Apache Helicopter Gunships, A10 Warthogs, A130 Spectre Gunships, B1 Heavy Bombers, B2 Stealth Bombers, B52's, Cruise Missiles, F16s etc will seem like a real bargain. Europe, although having a larger population than the US and a substantial GDP is, comparatively, militarily impotent - as an axis power, the UK military is primarily allied to the US and Israel. China, although certainly able to defend itself, is not in a position to go throwing its weight around in the Middle-East. One potential "fly in the ointment" for axis military planners will be if Russia starts to take an active interest in what is going on in its own backyard, and decides, for example, that it doesn't want Iran taken over by the axis. Russia has a very advanced missile known as the SS-N-22 Sunburn, which can be launched from land or sea, including from submarines. This missile is not only capable of nuking cities, but, as it is able to fly at a height of only 60 feet at Mach 2.2, it has the power to simply remove US aircraft carriers from the theatre of operations, before they can even detect its approach.

Axis powers are engaged in a race against time, as the US economy is close to exhaustion and implosion, despite the veneer of a "recovery". They need to "get the job done and fast" while it remains an economic possibility. The UK economy is insignificant compared to that of the US and, in any case, is a debt-riddled service economy. Israel will be in big trouble when its host finally keels over, and needs to get hooked up to those Iraqi pipelines fast.

The next few years promise to be the most interesting since World War 2.

Clive Maund, Diploma Technical Analysis

Kaufbeuren, Germany, 5 June 2004

No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Informant: Vince Bradley


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