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Today’s action in all markets is interesting as it was put in motion after Secretary of State John Kerry spoke yesterday.  The Equity markets all over the world are weak, many debt markets except those thought of as “safe havens” have cratered and we see the currencies (especially of the emerging markets) taking very big hits.  As gold and silver have pushed strongly higher, even the “safe haven” currencies are weak when compared to real money rather than Monopoly(er) currencies.

Historically when looking back to the 1991 invasion of Iraq and most all of the other military incursions since then, gold did not react higher.  In fact, quite often you would hear shots fired only to be followed by a dropping gold price.  It didn’t make sense to me at the time but in retrospect I believe paper futures (like this past April) were used to depress the price with an added in “sprinkling” of central bank gold for good measure.  Psychology was massaged and managed so that war meant a flight into dollars rather than gold.  We will soon see whether this still holds true once Syria is attacked.

The “setup” now is totally different than it has been over the last 20 or 30 years.  We now know that demand for metal has exploded globally while Treasury demand has basically ceased to exist except from the Federal Reserve itself.  We know that inventories have been largely depleted and that gold supply is very “tight” as evidenced by the market being in backwardation for going on 40 days.  THIS has NEVER happened before and as I have written should never happen for even 1 day in a normal market.

This “setup” that I am talking about is already in place, one must wonder what exactly will happen once (if) shots are fired.  Will demand increase or decrease?  How about demand for Treasuries, will that increase or decrease?  What about supply?  Will a war most likely upset financial markets make existing owners more likely or less likely to sell?  And deliveries from COMEX and LBMA will more investors or less stand for delivery over the next couple of months?  These are all legitimate questions and the common sense answers would be pretty simple in a “free market” which is something hard to find anywhere these days.

In my opinion we will soon find out whether or not “control” of the markets is still held or if it has been lost.  We came close in 2008 but control was kept and then a new “normal” emerged.  Think about it, is it “normal” or does it make any sense at all that investors park money with a bankrupt entity and accept fewer than 3% (2% just 2 months ago) over 10 years?  Does it make sense that real estate could be “strong” if the potential buyers are broke and cash poor while interest rates rise?  Does it make sense for stocks to trade around 18 times earnings while interest rates are rising AND the corporations have already cut expenses (including employment) to the bone?  Nothing that has taken place (especially since 2008) can be considered normal.  EVERYTHING has gone against common sense and that which Mother Nature would approve with the exception of “things” inflating in fiat price.  This has been masked by “official” reports but everyone knows that “stuff” costs more now than it did 5 years ago.

In any case, we shall soon see what happens if Syria goes live.  This one will not be a “made for television” event and has all the potential to become something far larger than planned.  Will Iran become involved?  Israel?  It will test everything.  Will the UN even survive this if it begins without their vote of “approval?”  If there is a vote, Russia will veto any way… does international law still prevail?  Is the UN even relevant anymore?  Will markets stay open?  How about banks?  And another question…is your gold…really gold?  Is it in your hand or represented by paper… we will find out about this also and many will be disappointed.  The conditions exist for gold to make huge moves up with or without war and we will find out just how “available” it really is.  Supply and demand are already offside and “delicate” to say the least, a moonshot in the midst of a war and chaotic financial markets should not come as any surprise if it were to occur.

I know that I wrote about this yesterday but I know of nothing more potentially dangerous to the “status quo” than this developing situation.  There are too many variables to this one and too many moving parts.  In the past we did what we pleased and the world just watched.  I can’t shake the thought that this is happening right before a G-20 summit that we were not really invited to and then Pres. Obama refusing to meet with Mr. Putin.  This really does not smell like Iraq or Afghanistan and the hope for this to be a 3 day strike and we’re out of there is wishful thinking in my mind.  For the most part, “life” in America did not change during Iraq or Afghanistan, but now so many markets are set up for change and our “lifestyle” (standard of living) seems ready for a big change.  Syria may just be the black swan right in front of our noses that sparks the change that we all know is coming.  A real war will shake the status quo…and if we now do not follow up on our threats and the “red line” in the sand we will look weak which will bring change on its own.  Unfortunately we seem to be painted into a corner and have no other choice than to do “something”… one way or the other life in the U.S. is about to change.