The gold price continues to defy gravity.
Received wisdom has it that gold falls in price when interest rates rise – and this cycle was set in motion by the Federal Reserve’s raising of interest rates last week. Higher rates boost income-generating alternatives and tend to spur the dollar, against which gold is a hedge.
But gold has not followed the script. It did slump the day after the Fed’s decision last Thursday, hitting a new six-year low of around $1,050, but it has since been gradually rising and was this morning trading at around $1,080 an ounce. The question now is where it goes from here.
Most investment banks predict that gold will fall below $1,000 an ounce, probably in the early months of next year. A second interest rate rise would bring home the reality of monetary policy tightening, while the dollar would surge from its already historically high levels. Inflation, another key gold hedge, is likely to stay depressed as oil prices tumble.
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(Source) Oil prices are likely to remain low over the next five years because of plentiful supply and falling demand in developed countries, the International Energy Agency said Tuesday in its annual forecast.
The Paris-based body, which advises developed countries on energy policy, says it expects oil prices to return to $80 per barrel in 2020, with further increases after that.
Oil prices are down more than 50 per cent since the middle of last year. On Tuesday, the U.S. crude oil contract closed up 26 cents at $44.13 US a barrel.
In its World Energy Outlook, IEA warned members not to become complacent about low cost oil from a handful of producers as that could be a threat to energy security.
And it urged countries to move more quickly towards reducing greenhouse gas emissions.
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(Source) Oil edged below $44 US a barrel on Monday, after another bearish outlook for crude from Goldman Sachs.
Goldman said in a research report that oil prices could go “sharply lower” as storage tanks hit capacity, predicting the oil market would not balance itself in 2016.
West Texas Intermediate oil closed down 78 cents at $43.81 US a barrel on Monday afternoon, while Brent, the main international contract, was down 59 cents at $47.42 US a barrel.
Western Canada Select, a Canadian oilsands contract, had fallen below $30 again to $29.23 US a barrel.
The oversupply of oil worldwide has had storage tanks in Cushing, Oklahoma, at record levels for most of the year. It’s not just crude that is in oversupply, but also refined products.
Goldman Sachs sees further risk to crude prices which are already down 60 per cent from a year ago.
“Distillate storage utilization in the U.S. and Europe is nearing historically high levels, following near record refinery utilization, only modest demand growth (especially relative to gasoline), and increased imports from the East on refinery expansion and Chinese exports,” it said in its report.
Continue to read complete article: Europe also has a storage problem
(Source) West Texas Intermediate oil fell below $50 a barrel for the first time since April 2009 as surging supply signalled that the global glut that drove crude into a bear market will persist.
Futures slid as much as 5.2 per cent in New York. Brent futures earlier slid below $55 in London for the first time since May 2009. Russia’s output rose to a post-Soviet high in December, preliminary Energy Ministry data showed. Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, plans to boost crude exports to a record this month, the Oil Ministry said.
“This bearish market is being fed by a combination of surging supply and shaky demand,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “We now have Russian production at a post-Soviet high and the Iraqis planning to add even more supply to the market. This just adds to negative market sentiment.”
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Oil has settled below $60US per barrel testing the economics of shale production in North America, and oil sands production in Canada while presenting some very interesting investment opportunities in equities.
RBC Capital Markets and CIBC World Markets predict prices will remain below $60 for the first three months of 2015. Societe Generale SA’s Michael Wittner forecasts an average of $64.50 in the first quarter and $61.50 in the second.
Regardless it appears there is continued volatility in price and how low it will is anyone’s guess and one can find a variety of low price forecasts from $43 by J.P Morgan, to as low as $30. Is that sustainable? Not likely, and a price recovery will follow.
In terms of Saudi Arabia, there is plenty of chatter about how low Saudis Arabia’s production costs are and they could drive the price to $20 and still make money. However, keep in mind that Saudis Arabia is a oil export dependent country, and their desired price of oil has more to do with overall expenses (spending) in Saudi Arabia to maintain the country. For Saudis Arabia the concern it is about revenue losses rather then profitability of production. In comparison, in the USA the lower price of oil will have a negative impact on higher cost shale producers, but a positive impact the overall US economy at a time when the US economy is showing strength.
The low price also represents some significant equity investment opportunities in the energy sector, as low prices are likely not sustainable under $55 a barrel.
Iron ore prices are down 48% year to date and BHP is looking towards copper to offset a dimming outlook for iron ore prices. Global miners such as Rio Tinto, and Vale have focused on iron ore for the majority of their profits. BHP always promoted their diversified portfolio but still recorded 52% of their operational profits from iron ore in 2014.
BHP Billiton Chief Financial Officer Peter Beaven recently stated, “Emerging economies are transitioning to consumption-led growth and that’s not a problem for copper because copper is used in the build part of growth as well as in the consumption part.”
Read the Full Article >> BHP eyes copper growth to offset dimming iron ore outlook
We have all heard statements made by various experts – many self proclaimed – about when the world’s resources will run out. “Peak Oil” an event based on M. King Hubbert’s theory, is the point in time when the maximum rate of petroleum extraction is reached, after which the rate of production is expected to enter terminal decline. The same theory has been applied to many other commodities, and resources. This infographic, by Visual Capitalist, shows you just how much is left.
Key point with finite resources. Either prices have to go up, or major new discoveries have to be made. The latter requires investment in exploration. Unfortunately, there has been a drying up of capital for exploration over the last three years.