The Politics of Gold

On June 18, I wrote a piece on gold. At the time I thought the Iranian election story could lead to an unanticipated source of demand for the yellow metal. I thought there were three possible outcomes. Either (a) peace and harmony would break out, or (b) the police and military would fail to shoot at the protesters and the Regime would fall or (c) the protesters would be crushed and talk that Israel would bomb Iran would come on the table. I guessed (c).

Approximately one month ago a leading Israeli newspaper, Haaretz, published portions of a report produced by Center for Strategic & International Studies (CSIS) titled Study on a Possible Israeli Strike on Iran's Nuclear Development Facilities. This link will take you to a page where the full report is available for download.

This 108-page report provides a detailed plan of attack. It contains aerial photographs of the likely targets, a description of the anti-aircraft defense capabilities by site, bomb payload requirements and even an estimate on direct and indirect death tolls. Not a summer read.

The report is from March 2009. I have no idea if the information and conclusions are accurate. It certainly appears to be. Two observations from the study:

I) The timetable for achieving bomb grade fissionable material is 2010.
II) The Iranian air defense systems are inadequate to protect the critical sites.

Iran has been attempting to purchase Russia’s very effective missile defense systems for some time. The deal was never consummated. Pressure from European leaders saw to that.

However on 5/15/2009 (the same day the study from CSIS appeared in the Israeli press) China agreed to provide Iran with its S-300 anti-aircraft missile system. This is considered to be one of the most advanced systems available. Once delivered to Iran the outcome of an assault becomes much less clear.

The results of the Iranian election will potentially alter the timing of the Chinese missile sales. This sets up a US/China issue. Regardless of that resolution, the 2010 time frame for achieving bomb capability is not far away.

The price action in gold shows that it is marching to a different tune than the events in Iran. Like most things, this is a ‘timing’ trade. This story is not going to go away.

Comments

[TradingHelp...:]

Great article. You can sum up in one word why the Israeli's haven't attacked Iran yet - Obama.

Obama has about another year to win the diplomatic war. Thereafter the Israeli's won't tolerate a nuclear Iran.

I am not taking sides, just highlighting the issue.

Jul 01 05:04 AM

[nobby73:]

Iran says it is refining uranium in order to create a self-sufficient nuclear power industry. IAEA is monitoring the situation, and has close monitoring of the refined uranium which could, if all was used for this purpose, eventually generate enough fissile material for one weapon.

Dubious election of ill-educated nut-job does great job in bringing West round to Israel's view that bombing the facilities under the old used "absence of evidence is not evidence of absence".

China sits watching, eye the oil.

Can't see what any of this lunacy has to do with the price of gold

Jul 01 07:22 AM

[MinAkkar20:]

Iran has a legitimate economic case for operating nuclear power plants. They have a huge supply of cheap energy in domestic oil fields but the opportunity cost of using it would encourage them to develop nuclear power. As a nation, they can make more money by using nuclear power and exporting oil for revenue (and have political gain by continuing to subsidize domestic gas). I wrote a journal article on this years ago and will have to look at my sources to get the exact numbers and oil prices where this is true (it was true in 2006, maybe not when oil is < $50brl). Ironically, the US made this argument for them when they were considering helping the Shah build nuclear facilities in the 1970's.

Now whether this is just an argument to justify a Trojan horse nuclear program is another story...initially, the Russians agreed to provide nuclear fuel under a custody agreement and remove it when finished. This would satisfy Iran's needs and prevent weaponization of spent fuel. This was rejected by Iran as a double standard when it looked to India & Pakistan who had rogue nuclear programs that are now accepted and aided by the west. Perhaps it should look to Libya who gave up its program in return for economic incentives...

As far as gold goes, I'm not sure how many bps this affects gold demand as compared to the unsustainable US debt load and fiat printing bonanza.

Jul 01 08:33 AM

[doubleguns:]

Instead of dropping bombs on Iran we should drop weapons and ammunition for the masses. Let the pissed off Iranians deal with the problem themselves. We just need to give them the ability to fight back.

If they want freedom THEY can fight and die for it.

If it doesn't work out the Iranian govt will have something to think about. As will other govts who have citizens waiting for guns from heaven like North Korea, Myanmar, and maybe even China.

The great berlin air lift set the stage for this, but this time its weapons for freedom.

Jul 01 01:56 PM

[Speedspirit:]

War is pointless. In todays day and age cant the world not see this as a setup. Iran wants to produce electrical power and how else do you suppose they do it with idiotic wind power. Maybe Solar power. The US knows they should be building more Nuclear Power Plants or else we will not have enough power to run all the upcoming electric cars. Mr.Tesla knew how to make efficient real clean green electric power but that knowledge was destroyed by the men in black suits. The games for ultimate control are never ending. Step by little step.

Jul 01 07:09 PM

[yellowhoard:]

Israel is more patient than I.

If I had a neighbor that kept saying he was going to kill me and my family, and the police refused to deal with him, I would kill him in his sleep and worry about the police later.

It's always easier to beg forgiveness than ask permission.

Jul 01 08:45 PM

[marketman54:]

I may be totally wrong here guys but I read an article that said there are absolutely NONE, ZERO, electrical transmission lines from any of the nuclear reactors.

So, if there is no way to transmit the power from these facilities, why do they need them except to make bomb materials.

Jul 01 08:51 PM

[TERN:]

In fairness, according to the CSIS web site the study concludes that , yes, it could be done, but:
• The more there is an Israeli threat to the survival of the regime in Iran, the more Iran will be determined to acquire nuclear weapons. Iran would withdraw from the NPT based on the argument that it needs to acquire nuclear weapons to protect its sovereignty and any further aggression by Israel and the U.S.

• A strike by Israel on Iran will give rise to regional instability and conflict as well as terrorism.

• Iran should be engaged directly by the U.S. with an agenda open to all areas of military and non-military issues that both are in agreement or disagreement. Any realistic resolution to the Iranian nuclear program will require an approach that encompasses Military, Economic, Political interests and differences of the U.S vs Iran.

• The U.S. will have to try to make Comprehensive Verification of Iran’s Nuclear Development Program one of the priorities in any diplomatic dialogue, while trying at the same time to persuade Iran to stop its enrichment program. However, in this area the U.S. will have to walk and negotiate along a very fine line between Israel’s WMD and Ballistic Missile capabilities and the Iranian Nuclear development program. The U.S. must recognize that both are very closely inter-related and are fueling each other. So the U.S. should be prepared to address both issues simultaneously while trying not to be perceived as though it has double standards when it comes to Israel.

xxxx
Not exactly an endorsement of the idea.
In simpler language: it would be utter madness.

I think the Israelis know it and gold will have to do it without the help of another war.

Jul 01 10:45 PM

[optionsgirl:]

Tern's got it all wrong.You don't negotiate with lunatics. It is Israel that is threatened by Iran. Iran wants to annihilate Israel. Israel has had nuclear armaments since the mid 1950's, and has never used one in its defense. A strike by Israel on Iran would ultimately stabilize the region, just as the Israeli strikes against the nuclear capabilities of Iraq and Syria strengthened the region.
Countries like North Korea and Iran shouldn't be permitted to have nuclear weapons. Period.

Jul 02 08:31 AM