-- Posted Monday, 21 March 2011 | | Source: GoldSeek.com

Higher oil prices have been the most immediate impact on financial markets from the shock waves coming from the Japanese earthquake, Bahrain state of emergency and UN attack on Libya. Gold and silver prices have also bounced back quickly after an initial sell off.

Will precious metals now track oil upwards as they did in the parabolic spike of the late 70s? (click here) This week we will find out what else is to come, although who knows who is holed below the waterline.

After the much discussed Kobe earthquake of 1995 it took some months for Nick Leeson’s scandal to emerge which collapsed the venerable of Barings Bank. Losses after the Kobe earthquake turned his trading position from serious to fatal for the bank.

Time lags

HSBC has pointed out that previous Japanese financial shocks – and last week’s plunge in stocks was the third worst on record – have been followed a week or so later by big sales in overseas financial markets. Will it be different this time? The Bank of Japan has pumped $265 billion into the markets, that is almost half of QE2 in a week.

That might actually prove to be inflationary, and that on top of rising oil prices. Indeed, it is the surge in oil prices that has seasoned analysts most worried. The correlation between oil price surges and financial market corrections is one of the most reliable.

This ought to be good news for Gulf stock markets. Saudi’s Tadawul rose four per cent yesterday. But if global stock markets catch a cold as they did after oil peaked at $147 in July 2008 then Gulf stocks will only enjoy a very small rally before plunging back down again. Illiquid local markets serve to amplify volatility.

Attack on Libya

And what are we to make of the United Nations intervention in Libya? Colonel Gaddafi now threatens a long war, and in the absence of an intervention on the ground then the most likely outcome is something like Iraq from 1991-2003 with a no-fly zone and an imprisioned dictator.

This is hardly a stabilization. Gaddafi has been a promoter of international terrorism in the past. It leaves 1.5 million barrels per day of oil in hostile hands.

We have heard little about Bahrain with all the excitement in Libya. The image of the destroyed Pearl roundabout is symbolic of the crushed protest movement. But what comes next?

The Saudi spending package is good news for Gulf business, and half a million new homes is $67 billion in new work for contractors.  No wonder their shares leapt yesterday.

Bahrain’s fall

Yet Bahrain is in tatters as a commercial and tourism centre. Only Saudi bankers and weekend day trippers are going to want to go there now. No doubt there will be some kind of political solution but the odds of it working must be small. Also on the Saudi border, Yemen is also in violent uproar and unstable.

A final word on the Japanese nuclear power station crisis that seems to be abating. The radiation hazard scare is now replaced by a national energy crisis with electricity capacity permanently disabled. Oil and natural gas will have to be imported to fill the gap, and the future of nuclear power is in doubt.

Back to higher oil prices again, not a harbinger of recovery, far from it, the obvious stage two of this global economic crisis. Gold and silver prices are also rising. The ArabianMoney newslettter is preparing its readers for a rough but highly profitable few months ahead (click here).

-- Posted Monday, 21 March 2011 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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