Sunday 21st May, 2006


High price of geopolitics

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Geopolitics politics is an interesting “new” jargon in literature. It refers to how the commodities within the earth’s crust impact the positions of power that possession of these commodities brings. Of significance in this geopolitics is the possession of precious metals and oil.

Gold and platinum, two of the most precious metals on the commodities market, are priced higher than ever before. Gold is trading at USD 708.3 per troy ounce. Gold has not been priced so high since the 1980s.

Platinum is now priced at USD 1235.50 per ounce. With oil quoted at USD 70.80 per barrel, savvy investors follow a belief that precious metal prices tract the price of oil, and hence the impetus.

One of the relevant factors is gold and precious metals have always been a hedge against inflation and rising oil prices. What makes commodity trading such a store of power is the fact they have a value that is greater than the values of stocks and bonds.

The underlying edge in commodity trading is that this sector of the market thrives on political crises, uncertainty, bad weather and the threat of war. This makes them independent of single companies and single governments.

It is what separates them from the trade in stocks and bonds.

Companies can go bust and governments can so mismanage finances and remain heavily indebted for decades. Investing your dollars in companies that issue stock and governments that issue bonds, therefore, can result in negative returns and net losses for investors.

The commodities market is not a popular one for the average investor. This is principally because of the risk return trade off. Typically, the risk is very much higher, in the commodities market, than the risk in the bond or stock market sector.

Remember the rule of thumb in the market is that higher risk engenders higher returns or alternatively higher losses.

Somehow the neo-savvy investors get caught between the devil and the deep blue sea all the time, and the day trading phenomena appears to be a prescription for failure, on the one hand or on the other: acute good luck, at best.

But if you have the solid base from years of conservative savings, inheritance, wise investments and if you’ve covered all your risks through the protection of insurance and taken the requisite measures to conserve and preserve your estate, the commodities sector skill resides in the knowledge of what is happening in the geopolitics.

Who is at risk for war? What resources and commodities do they possess. Where are the trade deficits among the political powers? Who are the currency manipulators? What is happening with short interest rates in the US, and why. These are indicators of positions of power.

The experts are now looking at China, India, Syria, and Iran as centres of controversy. Syria and Iran seem to be at odds with other world powers. Is there a chance of war in these regions? What is the national preparedness for war in these countries?

China is being viewed as a massive net exporter, much to the detriment of trade relations with other world powers. Will the strength of their army prove a deterrent for war? Or will new policy positions have to be mediated?

These are really the questions that lie beneath the power positions in the realm of geopolitics. Knowledge is power in a mundane sense!

But how you use knowledge really determines how much money you get to keep. So if you want to swim with the sharks, you must learn to second guess the policy plays on the political fronts.





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