The turmoil in the Middle East is continuing to prevent a return of normalcy to the region`s affairs and inflating oil and gold prices dampening market sentiment. This is all the more evident in the rest of the world outside of the U.S., since American investors always have the Fed to depend on.

In Libya, clashes between the government and the rebelling opposition forces are continuing. The Libyan dictator seems unimpressed by the escalation of measures and threats of action voiced by Western nations, and appears to believe that he can crash the uprising against by violence alone.  The battles are now focused around the oil producing region of Sirte, with the most violent clashes reported to have taken place near the oil hub of Ras Hanuf, explaining today`s leap in prices. The colonel is using artillery and helicopters to force his determined opponents back and while he is reported to have succeeded today in delaying their advance, it is evident that he has almost no support base in the country outside of his immediate circle of cronies and favorites, and his days in power are probably limited.

In Egypt, by contrast, the former president is headed for a trial in which his and his family`s allegedly unlawful acquisition of wealth and illegal prosecution of opponents will be brought to account. A return to military dictatorship in Egypt seems like a dimmer prospect with each passing day, but at the same time, as the pressure on Mubarak and his closest associates increase, it is always possible that some factions in the army will attempt a takeover in order to save their hides. As with all revolutions, it is nearly impossible to predict who or what will eventually survive and what kind of regime will finally rule in Egypt.

Stocks around the world are lower, but the U.S. open has so far been encouraging. The USD is generally lower against its peers, perhaps in anticipation of the rise in oil prices, but it is unclear whether this trend can be sustained if the geopolitical situation gets out of control quickly. Gold is close to breaking new records at $1436 per ounce, while oil is comfortably above $105 per barrel. There is no end in sight to the turmoil in the Middle East, so the trend may continue, but we should not forget that both for gold and oil the hint of aggresive Chinese rate increases could be severely damaging in the short term, even if the longer term course for gold in our opinion remains pointed to the upside. The oil price and the Middle East crisis will continue to be our focus, and we are somewhat impressed by the jump in volatility as the "bull market" charges on.