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As the world watches the US and UK agree to release oil from their respective Strategic Reserves, the price of oil has never been higher on this day in history.

March 19, 2012 – While most investors are watching gold and silver prices like a hawk after news broke of the next round of the fiscal stimulus known as Quantitative Easing, the possibility of a conflict in the Middle East is very prescient in the minds of investors around the world. Marc Faber, well-known gold bug and market bear, recently said in an appearance on CNBC, “Political risk was high six months ago and is higher now.” This is another way of thinking about a long-time conflict. We need not necessarily consider the outcome of the situation as we can accurately summarize that the effect was felt six months ago and it is stronger today.

As the world watches the US and UK agree to release oil from their respective Strategic Reserves, the price of oil has never been higher on this day in history. Partially to blame for this dynamic is an escalating conflict between the Western powers and the fundamentalist countries in the Middle East, typified by the Islamic Republic of Iran.

Whether the current conflict actually comes to a head is again relatively immaterial. The effect on the world markets, particularly the commodities markets, is already felt. Granted, we don’t necessarily see those effects as the announcement of Quantitative Easing ripples through the markets and releasing the Strategic Oil Reserves will keep the price of gasoline below $5 a gallon in the US. If the cost of gasoline to the average American were to rise to the level of supply and demand allowed by the current production design, there would be a reaction in the country tomorrow.

Gold and silver prices, as well, are consolidating in the rising tension. The gold-oil ratio is a well-recognized standard indicator and any move in the price of oil per barrel will affect the price of gold. Further, Quantitative Easing programs necessarily dilute the purchasing power of the dollar and therefore increase the amount of dollars required to purchase an ounce of gold. This is partially why gold and silver have been gaining so much and will continue to gain so much value.

The current economic indicators point toward an increase in the price of gold and silver. Add on any rise in the tensions in the Middle East and prices will rise even higher and even quicker. Currently, at least one American aircraft carrier is on its way to the Middle East. The USS Enterprise will arrive in three days, underscoring the very serious political tensions observed in the rest of the world more easily than here right now.

All markets look good right now on the news of a Quantitative Easing program, but gold and silver shine above the rest when considered in the broader field of political influence.

Shannon King

Senior Staff Writer – GoldSilver.org

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