Oil and gold prices spiked higher early this morning, while stock prices declined, in response to traders’ reactions to further political tensions in North Africa and the Middle East.
Specifically, futures contracts on crude oil rose $8.34 (9.7 percent) and futures contracts on gold bullion rose $20.70 (1.5 percent), while the S&P 500 Index fell 1.3 percent, compared to last Friday’s close, as political protests in Libya and Bahrain turned violent.
Given that Libya is the world’s 18th ranked producer of crude oil, and because there’s a good chance that an increasing number of oil producers in Libya will shut down their production of oil in Libya if the violence in that country were to escalate, the immediate reaction of oil traders is understandable. Spain and Germany’s largest oil companies, Repsol and Wintershall, announced this morning that they have already shut down their production of oil in Libya.
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However, there’s no reason to think that oil and gold prices will continue to rise and that stock prices will continue to decline.
Quite the contrary, my experience suggests that oil and gold prices will fall as rapidly as they rose, and that stock prices will quickly rebound, in the event that the political protests in Libya were to lead to the country’s ousting of its dictator, Moammar Gadhafi.
Although Gadhafi might be able to maintain control of Libya, the political future of that country appears to be in favor of the protestors, with Egyptian and Tunisian citizens recently ousting their dictators, and calls for freedom spreading throughout North Africa and the Middle East.
Meanwhile, the Conference Board announced this morning that Americans’ appraisal of current economic condition in the United States, and their expectations regarding the direction of the U.S. economy during the next six months, rose during the first three weeks of February to the highest level since February 2008.
Separately, the Federal Reserve Bank of Richmond announced today that manufacturing activity in the mid-Atlantic region of the United States rose sharply during the first half of this month. That report follows similar reports from the Federal Reserve Banks of New York and Philadelphia, which announced last week that manufacturing activity in their regions of the country also rose sharply during the past few weeks.
In light of the fact that an overwhelming number of economic statistics indicate that economic conditions throughout the world will continue to improve during the months ahead, and because of the potentially positive long-term effects of the growing political tensions in the Middle East, I urge you to not overreact to today’s rise in oil and gold prices, and declines in stock prices.
In addition, I urge you to keep the following in mind: History has shown that one of the better times to buy stocks is when there’s “blood in the streets” – when many investors are selling stocks in droves because of their false perceptions of the potential outcomes of certain political events.
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