GOLD 0.51% $1,391.7 gold futures

+ oil and gold prices +

  1. 22,691 Posts.

    The "PREDICTION OF OIL AND GOLD PRICES" of 21 Aug. serves as an introduction:

    1. OIL
    I didn't want to predict the oil price for the remainder of 2005 as I could'nt gauge at what price the pressure on US Households and ensuing inflation were going to make a heavy impact. It subsequently turned out that because of heavy private US debt, $US70/barrel was too much for the time being. Interest rates were also rising and this combination meant more debt was incurred everytime the the tank needed filling.

    Incomes did'nt keep pace with inflation, the latter as well as other data were manipulated anyway so the real CPI was much higher than the published one.

    At the moment, the Oil price is about $61.80.
    One could argue that oil is not expensive if real inflation were taking into account. however, oil at $45 in a depression could feel just as expensive as $75 during a boom.

    So, will the oil price come down hard in a deep recession?
    Assuming there is little inflation, there are a number of problems which on their own or in concert could still maintain firm prices:
    The geopolitical situation in the Middle East necessitates a risk premium. Venezuela, one of the US suppliers is taking an increasing hawkish stance and is increasing its influence in South America.

    Most large Oil Companies are not increasing oil reserves unless by takeover. Dutch Shell had to heavily reduce their reserve estimates twice and that could happen to others, particularly if the wells are not performing so well after peaking.

    There is a ruthless competition for oil resources with the US, China and India as the main combatants. I did mention previously that this results in locking up of resources by some State companies who can afford to do that. So, the oil is withdrawn from exploitatation: ''Sino-U.S. Energy Competition in Africa'':

    Then there are the usual impediments. eg Hurricanes, sabotage. The US is borrowing petrol from Europe and is raiding its strategic reserve as well; so, this oil / petrol probably needs replacing. The winter is near but there still are a number of US refineries and wells out of action.

    Europe will be getting a lot of gas/oil from Russia while they also import from Russia and Norway.

    Summary: The US is trying to save some energy but this is being negated by less production from their own oil fields: one report mentioned that Oil imports accounts for 40% of the increase in Trade Deficit during the last 3 years.

    Substitutes are being used but the quality of oil from Tarsands is much lower than desired, extra costly refining is necessary and overall costs of extracting are increasing. It wil be some time before the influence of a substitute can be really felt, I think.

    2. GOLD
    The combination of much US Debt, too many dollars in circulation (Other countries are having the same currency problem), higher oil prices, higher interest rates, higher inflation, a wobbly stock market and a shaking out of the US housing market are promoting GOLD.

    Massive Hedgefunds are constantly looking for new investments and are now backing Gold. They can be big enough to defeat the Commercial shorters in the right conditions and may well feel that all positives for Gold to rise are aligned and thus are pushing up the Gold price. The support of large Hedgefunds is important because they make the job of the Fed's Gold Cartel much more difficult.

    The average US citizen feels the heat from inflation while reading "there is little" and because of better dissemination of the terms GDP and CPI now understands that these are manipulated data. Confidence declines.

    There is diuscussion about a recession coming and the damage from the latest Hurricanes has'nt helped either. What is also driving Gold is the increasing Budget deficits and debt to be expected.

    The coming week will have a lot of important US Data coming in and may affect Gold prices. Many do expect some problems with the markets and the replacement of Greenspan by Bernanke? in January will introduce another risk premium andf hence be good for Gold IMHO

    Readers, please do your own research and you decide if and when to buy, hold or sell any stocks.

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