If you've been following our advice for some time, and dutifully keeping the faith, then last week's 2-3% decline in general commodity prices and gold's 8-9% plunge – which appear to have taken both of these indices below their previous lows for the year – may have caused you to have doubts. For this to happen in the face of the game-changing events taking place last week in Eastern Europe – which one might have expected to be supportive of commodity prices – is especially vexing.

Sure, Russia could pull back its troops. But even if it does, clearly the U.S. and NATO have experienced a serious setback in their aspirations in the region. Russia seems to have decided that its strong resource base gives it less to lose than the West and more flexibility to assert dominance in its backyard.

Let's be specific. The fact that Russia confronted Georgia may not be a big deal to Wall Street. Markets are mercenary. They don't care about bloodshed or loss of life. What makes them move is the economic consequences of events.

But in this case, two economic consequences stand out clearly, both of which look like arguments for higher commodity prices. First, Europe's oil supply has now become less secure, which means the Europeans have less control over their economic destiny. If Russia can control the pipeline going through Georgia, it will be in a position to dictate higher oil prices. This certainly heightens the inflationary pressure.Read more...