23:27 GMT +320 September 2019
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    Oil Prices Tumble, Precious Metals Prices Probed by US Dept of Justice

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    Will Gold Beat Dollar for Number One? (11)
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    Gold is not a 'safe haven' anymore as the US suspects its prices have been manipulated, while uncertainty in the energy markets has rendered US bonds, equities and currency a better choice for investors.

    Kristian Rouz – As most of the world's commodity prices have been falling, either dramatically or steadily, since mid-2013, concerns over the sustainability of economic recovery have been supported by the evident lack of growth in the Eurozone and Japan, among others places. Meanwhile, the Chinese slowdown has the potential to trigger another global recession. Commodity valuations and global economic expansion are directly interconnected, and the recent decline in most non-precious metal prices along with, more significantly, oil prices, was strangely not preceded nor followed by negative dynamics in either gold prices or the price of other precious metals. After the European regulators' probe into precious metals' valuation ended in late 2014 to no avail, the fact that US Department of Justice has started a similar investigation speaks for itself: gold is likely overvalued.

    After a moderate 'rebound' that lasted about a month, oil prices fell again early this week, and this might be just the beginning of a new prolonged plunge, with a support level of $10/Bbl as soon as mid-to-late March. Oil retreated 2%, to $58/bbl of Brent crude early Tuesday as oversupply is significant. At the same time, adding to the oil panic, the price of heating oil appreciated by 5% in the US due to the major strike at refineries from Texas to California. Such mixed dynamics have left market participants disoriented; however, it is widely believed that the negative trend will prevail as winter ends soon, while the oversupply is not going anywhere: global demand is really weak and is only getting worse.

    US WTI crude is trading at $49/bbl. The spread in valuation between Brent and American crude can be explained by the largest strike in 35 years, which has affected 12 major refineries.

    "The spreads for crude oil are becoming severely altered by the refinery strikes. For the WTI-Brent spread, with a lower capacity to refine crude oil, WTI remains in excess in the market compared to Brent. This causes the spread to widen," analysts from Phillip Futures wrote Tuesday, as quoted by Reuters.
    Some observers were expecting an acceleration of global demand for cheaper oil, however, that did not happen. China continues to slow down to a glut, while Eurozone and Japan, balancing on the verge of deflation amidst dire structural problems, have only been saved by excessive money-printing.

    Nevertheless, there are bright spots that might keep oil prices from falling further. In Germany, business confidence is at its strongest, as evidenced by the Ifo business climate report published Monday.

    Nigeria's oil minister warned he would call for an urgent OPEC meeting in case oil dips, but given the oil cartel has lost everything except its power to control the crude valuation and the Saudis are least likely to trim extraction, the Nigerian calls have provided only a psychological support to the oil markets, with crude price stabilizing briefly Monday.

    Meanwhile, gold, along with other precious metals, have yet again become an object of regulative scrutiny. This time around, the US suspects the world’s biggest banks of manipulating gold prices. Given the fact that gold soared during the past last year and a half, its dynamics might have been the result of bullish speculation. In other words, gold might be significantly overpriced (or, less likely, underpriced).

    The banks which have been hit by the US probe include HSBC, the Bank of Nova Scotia, Barclays, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc, JPMorgan Chase & Co, Societe Generale, Standard Bank Group Ltd and UBS AG, according to a recent Wall Street Journal report.

    There have been reports that precious metals might be manipulated, as benchmarks for their valuation are discussed between banks by phone. A consequence of the ‘inter-bank conspiracy’ is that some currency markets might have also been affected.

    In the short-term, we are likely to see cheaper oil, possibly as a result of a yet another dramatic plunge, while precious metals should be expected to fluctuate in terms of their monetary valuation significantly as a result of the US probe. Cheaper gold might be the most likely scenario, and, as the dollar is on the rise against most other currencies, so it is high time to sell gold for US Treasuries or greenbacks.

    If the US stock markets do not crash, of course.

    Will Gold Beat Dollar for Number One? (11)


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