Jim Rogers, trader extraordinaire, says crude oil is going to $100 per barrel and probably much higher. Goldman Sachs also predicts oil prices headed to the $120 to $140 area. (At this moment we are only about $20 from that unbelievable $100 target)

Much of our imported oil comes from very unstable regions that simply tolerate America, at best. For example: that Castro-wannabe Chavez who despises America, Americans, and America's way of life recently announced Venezuela is suspending sales of gas to "his" Citgo service stations. Russia has been known to turn off their oil spigot at a moment's notice. Mexico has the world's 2nd largest producing oil field. The problem is their production has declined 5% over the last two years and that decline in their oil production will only accelerate over the next few years. The Middle East is the Middle East, unstable and Muslim controlled. Nigeria is an important provider of energy products to America. However, their oil producing fields are coming under more regional attacks, and their oil-producing infrastructure is in great need of modernization, without which their oil production will also decrease. Bottom line, high (and possibly much higher) energy prices may be here for a while.

Do you trust congress to secure a relatively inexpensive free flow of oil for America? Just remember, these are the same people who turned down a minimum wage increase for those currently earning $5.75 an hour while at the same time voting themselves a $31,000 cost of living allowance.

So, what does all that have to do with gold prices? Here's what…

Over the last 40 years one ounce of gold would buy, on average, just over 15 barrels of oil. Sometimes one ounce of gold would buy over 25 barrels of oil. Only three times in the last 40 years has gold been so cheap that it would buy less than 9 barrels of oil per 1 ounce of gold. Every time gold prices have been that cheap relative to oil prices gold has rallied strongly in relation to energy prices. Right now 1 ounce of gold will only buy around 8.7 barrels of oil. Gold never stays this cheap relative to energy prices.

IF crude oil hits $100 as predicted, and gold move to the average valuation of 1 ounce of gold for 15 barrels of oil, then one is looking at $1,500 gold. In spite of the incessant advertisements of the past few years touting $1,500 gold, the fundamentals have never been in place to see that possibility… until now. The people who scoffed at $100 oil will be the same people who scoff at $1,500 gold. I know, I was one of those scoffers.

This is being written Thursday night (07/13/06) and since I'm not privy to what goes on in the Israeli War Cabinet this is just my take on the current war in the Middle East…
Kofi and world opinion are going to condemn Israel whether they use restricted or all-out attacks against the terrorists (and their sponsors) who invaded Israel. So, I believe we will see Israel go deep into southern Lebanon and the Bekaa Valley, the center of power for Hezbollah, with overwhelming force. This move will also present Israel with both a dilemma and an opportunity. Syria and Iran's bloody fingerprints are all over the kidnappings. This was their way to draw Israel out into a protracted war, while at the same time claiming their innocence. It would be dangerous for Israel to move north into Lebanon while Syria's air force remains intact. Therefore, I think Israel may destroy Syria's air force before their full-scale attack into Lebanon. Why would Israel do this? Wouldn't that move just widen the war? Here's why…
Syria and Iran have a mutual defense pact. Iran's Mahmoud, a modern day Haman who will also eventually hang on a gallows of his own making, has pledged to attack Israel if they attack Syria. From the Israeli perspective, this would seem a timely way to force Iran's hand in this matter. If Iran enters the fray, then I believe that would bring American forces into the conflict. This could provide the perfect opportunity for the U.S. fleet to destroy Iran's nuclear bomb making facilities. That is a matter that has to be taken care of sooner or later. Once Israel has made sure no more rockets will hit their citizens from southern Lebanon and Syria's air force is destroyed, then world pressure will be such that a "truce" will be requested and accepted by all parties. At that time, as it pertains to the gold and energy markets, gold could drop $50 and energy prices could decline $10 to $15 very quickly.

What is going on now in the Middle East is not Armageddon. These events are only the precursor to Armageddon.

BTW, if you think our stock market is suffering you should see what is going on with the Middle East markets. Dubai, the business center for the Middle East, has seen its stock market decline almost 70% in just the last 8 months! (They have so much money they built a snow-skiing site in the desert!) Saudi Arabia's stock market is down 40%; Qatar's market is down 40%; and Kuwait's market is down over 20%. Will our stock market match those declines? Who knows, but it is good to be aware of what is going on in that part of the world because it will affect your investments.

Lest you get too depressed over world events let me close with this…
"You will keep him in perfect peace whose mind is stayed on You, because he trust in You." Is. 26:3

July 14, 2006

Baird Montgomery,
eProfits.com Inc.