|"War premiums" in gold and oil prices are probably myths. It is more likely that both prices reflect "War Discounts!"|
All the talk about "war premiums" in gold and oil is most likely a product of wishful thinking rather than reality. It is widely believed that gold and oil prices have been rising as a result of the uncertainty associated with Iraq*, and that prices for both will fall after this situation is resolved. As a result, these expected prices declines are most likely already discounted into current prices. As such, both gold and oil prices most likely reflect "war discounts" rather than "war premiums." In fact, both gold and oil, now clearly in bull markets, are climbing proverbial "walls of worry" as investors are afraid to buy fearful that prices will fall after the uncertainty over Iraq is resolved. The most likely scenario is for both gold and oil prices to continue rising no matter how the Iraq situation is resolved!
*I have already written in prior emails that the rise in the price of gold has much more to do with a loss of confidence in the dollar, inflationary Fed policy, Federal fiscal irresponsibility, a rising current account deficit, a weakening U.S. economy, high domestic debt and low domestic savings, etc. rather than the situation with Iraq. I believe that Iraq simply provides a convenient excuse for Wall Street to explain away rising gold and oil prices, and weakening equities and the dollar, as the result of a temporary uncertainty , rather than a permanent situation reflecting severe structural problems with the U.S. economy and an over-valued stock market.