Commodities & Currencies

(Houston)

The oil market is currently caught between two competing views. On one side are those who think that oil will continue its century long boom and bust cycle, feeling that is bound to rise again. Others think that cycle has finally been broken and that oil will stay low and range bound for a long time. The argument of the latter is that shale oil has finally made the market competitive, meaning that supply can efficiently rise with demand, keeping prices stable, something that has never really happened in the oil business.


FINSUM: We think the debate over the competitiveness of supply is secondary to what we view as a false assumption of demand growth. Total oil demand peaked over a decade ago in the US and Europe. Emerging markets will likely follow the same pattern, so why is the world expecting big demand growth (especially with renewables growing quickly)?

(New York)

Despite big gains in the stock market, gold has also done very well this year. Geopolitical issues and worries over market valuations seem to have given a lift to the metal. However, despite the ongoing trouble in North Korea, more volatile markets recently, and weakening inflation, gold may not be a great bet. One of the big reasons why is the Dollar. Part of gold’s strength this year has been the Dollar’s weakening. However, that trend may come to an end soon, as the Dollar may be set to reverse. Gold is priced in Dollars, so when the latter is weak, it tends to strengthen and vice versa.


FINSUM: So the one big thing on gold’s side right now appears to be the belligerence of North Korea and the tensions it is causing for financial markets. Also, given the Fed’s dovishness, it is hard to see a big Dollar rally starting.

(New York)

2017 has been a very odd year in markets in at least one respect—at the same time as risk assets have rallied strongly, so too have gold and other haven assets. BlackRock is arguing that at least for gold, that pattern is set to continue. There are two reasons why. Firstly, gold’s performance is highly linked to real interest rates, which are likely to remain low and are in fact falling right now. Secondly, in the long-term gold’s movements have been more tied to political uncertainty than financial market volatility, a point which really resonates in today’s era of doubt over not only domestic US politics, but also geopolitical tensions.


FINSUM: We like gold’s chances right now. Markets are on edge, the political situation is not improving, and rates looked pinned. All favorable for the yellow metal.

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