Gaza War: Expect a Spike in Oil, Gold 28 comments
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Strangely, economic commentators have missed the most obvious impact of the tragic Gaza War on the global economy: Oil prices are going to rise, and will go sharply higher if the war widens into a regional conflict. So too will precious metal prices. Perhaps this perception will change now that a serious ground offensive has started.
Higher oil prices will be the death knell for the recent modest rally in global stock markets and the impact of higher energy costs on a weakened world economy would be nasty. This is back to 1973 and the oil embargo years, and the horrendous stock market slump of 1974.
Some might argue that with the S&P down 38 per cent last year, stocks have seen their annus horribilis. But sadly stocks are still over-valued in historic terms and not near to the level required for a stock market bottom. On the Q-formula they still have a 55 per cent downside.
Oil price shock
Rising oil prices are just the kind of shock the global economy and stock markets could do without now as they struggle to rally. There does not seem the political will among Arab leaders for an oil boycott like in 1973 but the popular feeling against Israel’s disproportionate response to rockets fired from Gaza is mounting.
Dubai, Jordan, Syria and Egypt cancelled their New Year’s celebrations as a mark of solidarity with the people of Gaza, although political support for Hamas is another matter.
Regional war threat
The more likely threat to oil prices comes from a widening of the Israeli offensive to include another incursion in to Lebanon to fight a re-armed Hezbollah, although their last attempt in 2006 is widely perceived as having failed in its objectives.
On the other hand, what began as a series of air raids with hundreds of civilian deaths is clearly developing into something more on the lines of the Lebanon War of 2006, and the implications for the oil price this week are obvious.
Gold, silver and the US dollar are likely to gain in value in a flight to safety but this is negative for most other asset classes.
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This article has 28 comments:
What is the Q-Formula, I did a Google search and did not find anything relevant to security asset pricing.
I partially agree, but certain sectors will do great on higher oil, My coal stocks, my solar, wind, geothermal, are flying high. The secret to the economy is energy. High energy is a "cost" to drag consumer spending, yes, but it "spurs" other spending. The psyche of the economy will never be the same after $147bbl oil, and learning about peak oil issues,
I think that to suceed in the comming decade, we should forget about dollar valuation, and only consider energy valuation, oil as currency also electricity(coal)....t... about it, it where food comes from( i calorie food - 10 calories fossle fuel), where metals and materials come from(energy the rent ore rom the earth and smelt), how goods are shipped back and forth in our global efficient markets. I personally value everything (including gold) as to its value in oil bbls or btu's expended/gained. once you do that you know how to price most commodities and alot of stocks in this market.
Gold lost its luster as a war safe-haven when Russia invaded Georgia (look at a GC chart if you missed it). I doubt most investors have forgotten that lesson this soon. I expect gold to see the $600's before it sees the $1000's again.
A lot of people have been rabid in their outlook for Gold.
And they should be as prices of finished goods start to rise, but they aren't, YET.
The implosion of everything financial during the fourth quarter of 2008 should have led to soaring gold prices, it didn't. That is a major problem.
Most comments were in the vein of "look at the strength gold has while the financials crash. Its only down 15% from its highs."
Gold should have been soaring primarily because it is perceived to be a Currency. Mr. Pinelli was totally right on this aspect, but I missed the implications at that time.
Gold should have risen against All currencies, it didn't.
Gold struggled and wound up the year only a few % higher, meanwhile the USD rose to multi year highs.
If the last quarter can be considered a guide, dollar strength will equate to weaker gold.
Like an earlier post commented, there are no oilfields in Gaza. IMHO
Just by saying that a dollar will rise in times of war, could be true, in case of severe ground war in oil-rich nations.
Not when a few thousand troops and a handfull of tanks march into a dense populated Gaza strip! The fact that oil will rise for this matter is just fear mongering, and minor in effect after the speculation dimms out in a few weeks.
As for commenter NOWHEREMAN, who says gold didn't rise against all currencies, I would say; wake up and get your sources right!
Look at the link below, where James Turk shows a nice table of gold relative strenght against all major currencies.
Its is concluded that gold rose double digits against these projected currencies, even on basket average!
goldmoney.com/en/comme...
For every sole soul outthere; Gold will rise and the Gaza war will help temporarily, but not with oil prices of 70 / 80 dollar a barrel. Just 50 at max for a few weeks. Then its falls back again. Gold thrives on the deflationary force in the economy combined with the (hyper)inflationary policy of the FED. Oil has minor influence at this point in time.
brgds
Basic economics teaches that price is derived by the interaction of supply and demand. Right now, supply outweighs demand. The WSJ's cover story this weekend "Manufacturing Tumbles Globally" reports that manufacturing indexes for every single nation across the board fell to their lowest levels on record. This is a bit of an exaggeration but you get the point. It will be several more months before the stimulus plans stimulate demand and before the OPEC production cuts affect supply.
IMO the Israeli/Palestinian saga won't escalate to directly involve Hesbola, Iran, or any of the other Arabian nations.
Gradually, the price of oil will rise again to a level that will be sustained. I expect to average $65 bbl in 2009.
Also, the Bush administration is replenishing the SPR with 12M bbls to be at its max capacity (727M bbls) before leaving. Way to go Georgie Boy! Thanks for nothing!
The FDIC will be moving in on Team Bank this week -watch your news- and you will likely see a flurry of more bank failures. As the Govt. sells more treasuries and bonds secured by the full faith and credit of the US Govt., (that is a hoot!) backed by freshly printed currency, the dollar will lose it's following. When it does, all hell will break loose. What will you be holding when that happens?
Figures Don't lie. Reality VS projections, I'll take reality.
Kathy: I'll be holding Gold, oil, silver, various long ETFs and ETNs.
I just do not consider the deleveraging process to be over, so I expect the dollar to rise to at least 92, possibly Parity. Given that this is my belief, I don't see a reason to change my holdings.
I have a Dollar stop loss, 78 from where we are. I am not risking a lot.
The scenario you paint is a Gimme. What you say WILL occur, eventually. I projected a USD drop to 40, months ago. That is my ultimate target. I will find that comment for you if you so desire.
We agree on direction, we disagree on timing.
IMHO
The current conflict is limited such that it should have little effect on either.
The likelyhood of a widening conflict based on the current circumstances are extemely low -
Virtually the same as at any other point in time.
So I dont think the premise of the article warrants it's being written in the first place.
If there is a dollar rally I expect it to move from 73 to 80.(boy was I off then, but new figures make for new projections)
....longer term 40-50 is foreseeable.
I was a big time Bull on oil and gold in June, July, even Aug. of last year. Do not believe what you are told by someone else. My posts are there for all to see.
Times change, I saw the chart patterns change but since 90% of my portfolio was in the Canroys and I was playing with the house's money on them, I was willing to ride it out.
I will not stupidly distrust my charts again.
Relmor: disinformation is one thing, outright lies are another. IMO
If someone kept shooting rockets at you house and family for eight years and you kept asking them to please stop but the continued you'd get pretty angry wouldn't you. Hamas is a terrorist organization whereas Israel is a member state of the UN. Hamas spends the people's money on bombs and rockets NOT on schools, hospitals and roads. Oil will rise because it was oversold at $33 just as it was over bought at $147. Gold will rise as a result of the global printing presses working overtime trying to re-inflate assets because of the credit crunch. Your analysis of gold and oil seem driven and shaped by emotion rather than on solid economic facts.
The reason gold didn'y "soar" during the financial crisis in Oct and Nov was deleveraging in every asset class...people scrambling for ANY cash and liquidity. Gold is and always has been primarily an alternate currency..reflecting inflationary realities and expectations and as the lone bulwark against paper depreciation.....
On Jan 04 09:30 AM NOWHEREMAN wrote:
> The key is really the USD which rallies in times of war. The Georgian
> mini conflict is similar to the Gaza incursion and the Dollar which
> was still quite weak over Christmas stabilized and started rallying
> last week with a push to the upside on Jan.2nd.
>
> A lot of people have been rabid in their outlook for Gold.
> And they should be as prices of finished goods start to rise, but
> they aren't, YET.
>
> The implosion of everything financial during the fourth quarter of
> 2008 should have led to soaring gold prices, it didn't. That is a
> major problem.
>
> Most comments were in the vein of "look at the strength gold has
> while the financials crash. Its only down 15% from its highs."
>
>
> Gold should have been soaring primarily because it is perceived to
> be a Currency. Mr. Pinelli was totally right on this aspect, but
> I missed the implications at that time.
> Gold should have risen against All currencies, it didn't.
>
> Gold struggled and wound up the year only a few % higher, meanwhile
> the USD rose to multi year highs.
>
> If the last quarter can be considered a guide, dollar strength will
> equate to weaker gold.
>
> Like an earlier post commented, there are no oilfields in Gaza. IMHO
On Jan 04 06:30 PM globalHOBBIT wrote:
> "...... but the popular feeling against Israel’s disproportionate
> response to rockets fired from Gaza is mounting."
>
> If someone kept shooting rockets at you house and family for eight
> years and you kept asking them to please stop but the continued you'd
> get pretty angry wouldn't you. Hamas is a terrorist organization
> whereas Israel is a member state of the UN. Hamas spends the people's
> money on bombs and rockets NOT on schools, hospitals and roads. Oil
> will rise because it was oversold at $33 just as it was over bought
> at $147. Gold will rise as a result of the global printing presses
> working overtime trying to re-inflate assets because of the credit
> crunch. Your analysis of gold and oil seem driven and shaped by emotion
> rather than on solid economic facts.
GlobalHOBBIT - only a fool would not be curious as to WHY someone would fire rockets at them. A terrorist is always fighting for a cause.
During the American Revolution, Americans were the terrorists, or freedom-fighters if you prefer. It all depends on the side you get your information from.
And I can tell you have not seved in the military. Proportional response is a formula to get a lot of your people killed. Once a decision is made to attack, you want it over as quickly as possible with your goal achieved. Shooting a few rockets back into Gaza (a proportional response) will achieve nothing. When the pain is great enough, the hostilities will cease; ask Nazi Germany and Imperial Japan. Disproportional force accellerates the cessation of hostilities.
On Jan 04 08:40 PM petetoth wrote:
> "If someone kept shooting rockets at you house and family for eight
> years and you kept asking them to please stop but the continued you'd
> get pretty angry wouldn't you."
>
> GlobalHOBBIT - only a fool would not be curious as to WHY someone
> would fire rockets at them. A terrorist is always fighting for a
> cause.
>
> During the American Revolution, Americans were the terrorists, or
> freedom-fighters if you prefer. It all depends on the side you get
> your information from.
>
See most people are non trusting of other people who don't play in the establishment's spiraling pryramid taxing schemes.They're dept leveraging games and politically correct B S.
There for long ago the media ran these normal non tax paying, work under the table,basically honest folks off their conservative non wasteing ass out of work unless they bought into the system of socially appropiate liscened slaves to a fiat money system.If your a hard worker your penalized if you work unliscened and don't pay the homey down the street.Your irresponible low life scabs who have no business wreaking a perfectly set up leveraged pryramid scheme.Your white trash,black trash,and brown trash,in the eyes of your establishment's law's of the day.
In reality your UTOPIA has a huge BLACK hole in it.And it is deflating rapidly.
This is why bankers hate goldbugs.Bankers use calculus and goldbugs use addition and subtraction. When reality bites you in your ass you cover it. Back to the beginning before calculus you must use addition and subtraction. One ounce of gold= 31.1 grams=480 grains.
There are about 2.4 trillion grains of gold in the world. How many dollars do we have in the treasury?
On Jan 04 10:37 PM deuxsous wrote:
> Gaza is irrelevant.... It's just another third world street gang
> trying to up the ante and losing. It's possible the producers are
> using it as an excuse to try a short squeeze in crude oil futures,
> but as an event it's meaningless.
How many of these little oil spikes have we seen for years..traders.
I do think oil overshot to the downside..
Gold...that is something I can't make a decison on...I'm not in love with
the long term charts...there is much speculation right now and that bothers
me when people get too bullish..still think assets decline or go flat with a
few rallies like we are having....reluctant to add to my position or sell..
Higher highs and higher lows since introduction.
PATHETIC.
On an ironic note, arch enemies Iran and Saudi Arabia are profiting from Israel attacking Gaza as the price of oil has risen to $48!
Like I say...a little bit of war drums here...throw in a category 4 storm there..
Count on our Russian and Middle East friends to keep hyping up those prices...
USO is off the canvas and counter-punching.....
Nowhereman...neutral on gold...no guts either way...no guts, no glory...
only into physical anyway....looks like dollar has more to go with
Euro rate cuts...not good for gold short term...hold what I have and
add if I see $650-$700.