Iran's Counter Offer

It appears that markets are obsessed with the Iranian counter proposal submitted today in response to the package of incentives offered to Iran by certain Western countries to encourage (coerce?) Iran to cease uranium enrichment activities. It is unclear what the details of the counter proposal will be, however, it will likely take a little time for it to be digested and understood. In the meantime, the price of Gold may drift up and down, possibly forming a "doji" today on the candlestick chart. That would be acceptable as yesterday's breathless climb in the Gold Bugs Index seemed a bit out of proportion with the rise in the price of Gold.

The following seems to be clear regarding the Iran situation:

1. In addition to having a coastline along the strategically critical Hommuz Strait, Iran has the 3rd largest oil reserves in the world [http://upload.wikimedia.org/wikipedia/en/d/d1/World_Oil_Reserves_2005.png]

Thus, Iran is in excellent position to threaten to disrupt oil flows to the world markets, if they were to so choose.

2. Iran effectively faces the enticing prospect of possible regional power vacuums due to the removal by the U.S. of its traditional enemies, the secular but Sunni-leaning Hussein regime in Iraq and the Sunni Taliban in Afghanistan.

3. Although the outcome of the Hezbollah/Israel conflict was militarily ambiguous, the result of the conflict was that the image of the Israeli Defense Force as being invulnerable was badly shaken, which may make Israel tentative for some time in asserting its own and U.S.-driven agendas in the region.

4. It is unclear to what extent China, Russia and France share the U.S.'s commitment to putting pressure on Iran.

5. By setting its own deadlines and putting together its own "new formula" proposal, Iran is taking a proactive stance in these "negotiations" and has made it clear that it will not be intimidated or cajoled into accepting any terms which it deems "unfair". That is, "unfair" in light of the realities mentioned above.

Accordingly, while it is unlikely that Iran will reject outright the package offered by the Western countries, it is also likely that that Iran's counter offer will drive a hard, maybe impossible bargain for the West to swallow. Thus, the most likely outcome of the Iran issue will sooner or later be probably bullish for Gold.