- What’s driving gold markets
- ECB admits complicity
Oil bulls just can’t catch a break.
You’d think the latest news out of Saudi Arabia would have sent crude prices soaring.
And…ever so briefly…it looked like it might.
The news in question is another Yemeni rebel missile attack on oil giant Saudi Aramco’s facilities.
The Iranian backed Houthi rebels were responding to Saudi supported air strikes in Yemen. They hoped to cripple Saudi Aramco’s 400,000 barrel per day refinery in Jazan.
And, as Bloomberg reports, the attack wasn’t limited to the refinery.
‘The rebels also used missiles and drones against Abha and Jazan airports, the Khamis Mushait base, and other targets inside Saudi Arabia, Houthi spokesman Yahya Saree said on television.’
Brent crude futures rose 1.9% on news of the attacks before retreating.
At time of writing Brent is up a meagre 30 US cents per barrel, or 0.05%, since I wrote to you yesterday. West Texas Intermediate crude went the other way. It’s down 1.1%.
You can see the recent price action in the below chart:
Click to enlarge
The muted reaction from oil traders can partly be pinned on Saudi defences allegedly intercepting all the incoming missiles. The refinery looks to have survived unscathed.
But, as you’ve heard me say before, the real issue for oil bulls is the flood of oil waiting to inundate the market. A flood that OPEC+ can’t hold back indefinitely.
The latest bad news for investors long on oil comes from the US Energy Information Administration (EIA). The EIA reported that US petrol supplies are at a record high. And crude stockpiles increased by 3.6 million barrels…once again exceeding analyst expectations.
And this with most oil exports shuttered from Venezuela, Iran and Libya. And with the output cuts from OPEC+ still in place. At least until the end of March…
The ongoing supply glut will likely spell more bad news for the big energy stocks.
Exxon Mobil Corporation [NYSE:XOM], for example, is down 9.6% so far in 2020. The share price is now down 23.6% from its 23 April 2019 peak.
Rival Royal Dutch Shell [NYSE:RDS.A] hasn’t done much better. Its share price is down 6.7% since 2 January. And down 14.3% since 23 April.
That may put the energy majors closer to fair value. But I wouldn’t go bargain hunting in the oil sector just yet.
Now, to the markets…
Overnight, the Dow Jones Industrial Average closed up 11.60 points, or 0.04%.
The S&P 500 closed down 2.84 points, or 0.09%.
In Europe the Euro Stoxx 50 index closed up 17.14 points, or 0.46%. Meanwhile, the FTSE 100 gained 0.04%, and Germany’s DAX closed up 21.31 points, or 0.16%.
In Asian markets Japan’s Nikkei 225 is down 454.42 points, or 1.94%. China’s CSI 300 is closed for Lunar New Year holidays.
The S&P/ASX 200 is down 29.82 points, or 0.42%.
West Texas Intermediate crude oil is US$53.15 per barrel. Brent crude is US$59.81 per barrel.
Turning to gold, the yellow metal is trading for US$1,578.64 (AU$2,337.69) per troy ounce. Silver is US$17.56 (AU$25.81) per troy ounce.
One bitcoin is worth US$9.346.71.
The Aussie dollar is worth 67.53 US cents.
What’s driving gold markets
‘For the first time in my life, I bought gold because it is a good hedge… Supply is shrinking, and that is going to have a positive impact on the price.’
Billionaire investor Sam Zell
Oil prices may be battling the fierce headwinds of oversupply. But there’s no such constraint in the gold market.
Last year at this time you could have picked up an ounce of gold for US$1,317. Today that same ounce fetches US$1,578. A tidy gain of 19.8% from this ‘haven asset’.
Here’s the one year price chart in US dollars:
Click to enlarge
Now I’d be remiss not to remind you there’s no guarantee gold will put in a similar performance over the next 12 months. It could even go down.
But Aussie gold expert Shae Russell isn’t concerned about the gold price retracing. In fact, her research indicates 2020 should be an even better year for gold than 2019.
‘I believe we’re at the beginning of the third major bull market in gold in more than half a century,’ Shae tells us.
Among the other hats she wears, Shae is the editor of the investment newsletter, Rock Stock Insider. That’s published by our friends over at Fat Tail Media.
And her take on the gold market looks to be spot on.
While global supplies of gold are growing slowly, demand is mounting. And not just among the world’s bullion hungry central banks.
‘The global stash of gold in exchange-traded funds hit the highest level in seven years as the impact of the novel coronavirus on markets and sentiment reinforced demand for havens at a time of low interest rates…
‘Worldwide gold holdings in ETFs rose to 2,561.2 tons as of Tuesday, the highest level since January 2013, according to data compiled by Bloomberg. They peaked at 2,572.8 tons in December 2012.’
We’ve now seen four consecutive years of growth in bullion-backed ETFs.
And if my maths are right, gold ETFs need only another 11.7 tons of buyers to set an all time record. That could happen any day now. And it’s just one more factor supporting Shae’s forecast that gold will soon be trading in record territory.
Not just in Aussie dollars, but in US dollars as well.
Though Shae does recommend you consider an ETF that tracks the gold price in Aussie dollars. ‘Because our dollar has been so weak recently, any rise is likely to be higher and faster in response to the underlying asset price than a US dollar–based ETF.’
To find out more — including Shae’s top four gold stock recommendations to make the most from a rising gold price — click here.
ECB admits complicity
‘European Central Bank stimulus has contributed to “very elevated” asset prices that raise the prospect of a sudden market drop, Executive Board member Yves Mersch said.’
Before signing off, a quick reminder that Vern Gowdie’s crash alert video series are still available for you to watch. Whether the alarming scenarios he outlines come true in the next few months or the next few years, forewarned is forearmed.
You can click on the image below to access the entire series for free.
Oh, and I’m meant to tell you this is all done in conjunction with The Rum Rebellion. That’s the free daily eletter Vern writes along with Greg Canavan and Matt Hibbard. You can check that out here.