The Politics of Gold

by: Bruce Krasting

July 01, 2009

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 (http://www.csis.org/publication/study-possible-israeli-strike-irans-nuclear-development-facilities 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.

(click to enlarge)