May 31, 2004
Author: Jim Sinclair
What the Saudis do - not what they say they’ll do - will on June 3rd set the world on a course that will have a major impact on both your life and your investments.
I have been reliably informed that the Saudis will have to choose between more cash flow (by increasing oil production) and pleasing their historical business partners in the United States or placating the fundamentalists in their society. In doing the latter, they would be striking a working relationship with al-Qaeda in support of its goal of achieving a unified Middle Eastern Islamic State under religious rule, one that would permit the Saudi Royal Family to remain in place with its vast wealth and privileges.
Al-Qaeda staged guerilla attacks on Saudi soil on the following dates:
* April 21st
* May 1st
* May 20th
* May 29th
The message delivered by these attacks has to be quite clear as to what is at stake in the decision now being considered by the Saudi Royal Family. Logically, increasing oil production would cause increased guerilla activity that would target expatriate workers whom the Saudis rely upon to maintain their oil production at both existing and expanded levels.
Whichever road the Saudis take, the price of oil is not going to get cheaper for any significant period of time as long as the broader world economy maintains its present growth rate. All OPEC members outside of Saudi Arabia are already producing at capacity and in fact are cheating which is a standard operating practice.
The suspension of production quotas only makes legitimate the present rate of production and will not add one drop of oil to the supply. Every member of OPEC except Iraq (surprise surprise) opposes the Saudi's public position of coming to the aid of those that need lower oil prices.
The US Dollar and the Price of Oil
This is a war. That is certain and if you do not believe that World War III is in progress, you will soon. This war is far different from anything that has occurred in modern times. The generals are as savvy about the market as they are strategists of guerilla tactics. This is a war based on religious tenets which if you choose to deny, you fail to recognize the axiom that “one man's delusion is another man's faith.” Al-Qaeda is now considering what the impact of oil prices will be on the US dollar as well as the political implications of terrorist activities on the upcoming US election.
To predict what war decisions will transpire over the next few weeks is too presumptuous. One thing you can be sure of and that is that such decisions are now being made. It is therefore rational to expect the unexpected and to conclude that very few wish the dollar well in comparison to any time in the past.
Because most periods of significant strength in the price of oil were momentary events, the public has become complacent. When it becomes clear that the current price of energy is here to stay, you can expect the public to go wild. Prices are rising everywhere and a wave of inflation is coming at the US dollar that few expect.
The combination of inflation, oil prices and a growing recognition that this is the Third World War – one that won’t be over any time soon - will impact the US dollar shortly, causing it to make new lows probably before August 15th.
For a risk profile of life in the United States at the present time please read the latest installment of Warren Pollock's "The Macroeconomic Newsletter" which is available here.
Conclusion:
For extremely uncomfortable - reasons both structural and war related - the potential for new lows in the US dollar is real. Because this is a war without an end in sight, it is imperative to look at investments as insurance against problems over which control may now have been lost to destiny.
For this reason, real gold exceeds paper gold in every form as the foundation of a program to maintain lifestyle by investment. The probability of new lows in the US dollar before August 15th increases the possibility, IMO, that gold will trade at or above $480 by that date.
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