Gold is trading at $1,535.65/oz,
€1,050.59/oz and £935.09/oz.
Gold is marginally lower while silver
is showing strength again today after yesterday’s 'worst ever' OPEC
meeting ended in disarray and saw oil prices surge. The ECB has kept rates on
hold and markets await signals as to whether interest rates are set to rise
sooner rather than later. Signs of an interest rate rise in July should see
the euro and gold rally versus the dollar. The precious metals are also
likely to be supported by further sharp falls in peripheral markets bonds,
particularly Greece, this morning.
There was a reminder late yesterday
that it is not just the Eurozone that is struggling
with debt. Fitch Ratings said it would put US debt on watch in early August
if Congress fails to raise the federal debt limit.
Oil in US Dollars
(WTI) – 12 Years (Weekly)
OPEC, the oil cartel’s
increasing impotency was seen yesterday when Libya, Iraq, Angola, Ecuador and
Algeria sided with increasingly influential Iran and Venezuela rather than
Saudi Arabia and its allies Kuwait, Qatar and United Arab Emirates.
Oil had already been consolidating
over $100 a barrel (WTI) and $110 a barrel (Brent) and further signs of the
increasing lack of importance of OPEC may lead to higher oil prices.
Geopolitically, the failed OPEC
meeting yesterday is important as it signals the declining power of the
U.S.’ primary ally, Saudi Arabia.
It also shows Russia’s
increasing power on the world stage. Russia is the only country to have
increased oil production in recent years, as OPEC exports have fallen.
Leading OPEC nations including Saudi
Arabia seem to be reaching or have reached their peak oil production, in what
is termed "peak oil."
Oil in US Dollars
(Brent) – 12 Years (Weekly)
Cartels can be successful in the
short term but attempts at price fixing or keeping prices near a certain
level are always ultimately futile as ultimately supply and demand will always
be the final arbiter of price.
The crisis in OPEC comes at a
difficult time for oil markets as emerging market demand for oil,
particularly from Asia, continues to grow.
Also, Japan’s nuclear crisis is
leading to a decline in nuclear energy production, possibly long term in
nature, and China’s massive drought has led to marked decline in
hydroelectric energy production.
There is increasingly the real risk
of an oil crisis especially given the very tense geopolitical situation in
North Africa and the Middle East.
It has also increased tensions, which
were already very tense, between the U.S. and Venezuela and more importantly
Gold Adjusted for
Inflation (U.S. Urban consumers price index - CPURNSA) – 1971 to Today
led by Iran and Venezuela, has snubbed its nose at the United States and the
rest of the western nations addicted to Opec
oil,” Democratic congressman, Mr Edward
Markey said. “This is a clear sign that America must engage in a long-term
plan to break our ties to this Opec-controlled
market, and prepare to deploy America’s oil reserves now to head off an
economic collapse from continued high gas prices.”
Separately, Iran announced it planned
to treble its capacity to produce highly enriched uranium which alarmed
western powers and was deemed ‘provocative’ by one international
There is the increasing
possibility of a 1970’s style oil crises and stagflation which saw gold
prices rise 24 times from $35/oz to $850/oz in just 9 years.
Gold’s price rise since the
year 2000 is meager in comparison as gold prices have only risen just over 6
times in 11 years.
Oil prices have risen over 10 times
since 1999. For gold prices to just catch up with the price increases seen in
‘black gold’, gold would have to rise over $2,500/oz (10 X
Coincidentally enough this is the
inflation adjusted high of 1980 – a level we have long contended gold
would likely reach in the course of this bull market.
Should gold match its last bull
market performance from the 1971 to 1980, it would have to rise 24 times or
from $250/oz to over $6,000/oz.
Something for the perennial gold
bubble callers to consider before they continue to discourage people from
diversifying into gold.
Silver’s increasing industrial
use and demand was confirmed this morning. Bloomberg’s Nicholas Larkin
reports that silver usage in solar panels may double to more than 100 million
ounces by 2015. Demand for the metal in the applications was about 50 million
ounces last year, the Silver Institute said in a just released statement on
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