Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets?

Commodities / Gold & Silver 2019 Sep 18, 2019 - 10:15 AM GMT

By: MoneyMetals

Commodities

Monday’s spike in crude oil prices could be a game changer – for geopolitics, for the economy, and for investors.

Normally it would be foolhardy to draw big, sweeping conclusions from a single day’s trading activity.

But in this case, it’s not just the fact that oil prices surged 13% to over $62/barrel. Or even the fact that more than 5% of the world’s oil producing capacity suddenly got taken offline.



The world can cope with volatility in the energy market. An increasingly volatile environment for all assets presents much greater challenges.

But few investors are positioned to cope with the rising risk of war in the Middle East. Few are prepared for the prospect of persistently higher energy prices and higher inflation. Even fewer are taking steps to insulate their portfolios from future black swan events.

Black swans by their nature are impossible to predict. No one saw a devastating drone strike on Saudi Arabian oil production facilities coming.

Delivering the biggest single blow in history to the global oil supply turned out to be surprisingly easy.

Unfortunately, it may be just as easy for terrorists or rogue states to target electrical grid infrastructure, nuclear power facilities, computer systems, or gatherings of world leaders. A single, crudely executed strike could not only inflict disproportionate damage to the global economy but also potentially trigger a full-scale war.

President Donald Trump says the United States is “locked and loaded,” ready to attack Iran for its alleged role in shuttering the Saudis’ oil facilities.

Republican Senator Lindsay Graham is suggesting we bomb Iranian oil refineries in retaliation – a move that could trigger another oil price spike and possibly provoke a Russian response.

Things have escalated rapidly since President Trump controversially planned – then cancelled – a meeting with the Taliban last week. He then proceeded to fire his national security advisor, John Bolton, who had been pushing for war with Iran.

That upset some of the war hawks on Capitol Hill. But the sudden attack on our putative ally Saudi oil machinery gives them one of their best opportunities to push Trump toward war.

How can investors best position for rising risk factors in heretofore sanguine markets?

Monday’s dramatic market moves offer some guidance. Energy stocks surged. Gold and silver gained 0.8% and 2.5%, respectively, on safe-haven buying.

The major stock market averages fell, but only modestly. There was no indication of panic selling taking hold.

Of course, the government’s Plunge Protection Team had the weekend to get circuit breakers on the exchanges in place. President Trump also vowed the U.S. would stand ready to tap the Strategic Petroleum Reserves if necessary to boost oil supplies.

Investors appear to still be largely complacent when it comes to the threat of future oil spikes.

For the past few years the conventional wisdom has been that oil supplies are plentiful and therefore prices should remain low. But those low prices reflected, to some extent, complacency about geopolitical risks.

Low oil prices have wrecked many marginal producers. Frackers and deep-sea drillers have been practically obliterated during a brutal bear market for the oil and gas sector that extended into this summer. It could leave a legacy of severe under-investment in oil production capacity.

The last five recessions were each preceded by a run-up in crude prices of at least a 90%, according to DataTrek Research. A one-day spike won’t trigger a recession, but we are very late into the economic cycle where the energy sector typically assumes leadership, before the economy and stock market roll over.

A surge in oil prices would put the Federal Reserve in a tough position. Rising energy costs hurt consumers and raise the odds of a recession. But if the Fed tries to help the economy by stimulating, it risks pushing energy prices, and price inflation more broadly, even higher.

If the Fed cuts rates again this week as expected, it will be betting that the oil spike is transitory and that inflationary pressures remain well contained.

The markets will have their say after the central bank releases its policy statement on Wednesday. If investors sense monetary policy is heightening inflation risk, they will likely bid up precious metals.

Physical precious metals are, in a very real sense, a form of stored energy. It takes an immense amount of energy to mine ore from the earth and refine it into lustrous gold and silver coins you can hold in your hand.

Higher energy and labor costs will ultimately translate into higher production costs for metals and higher spot prices. A surge in safe-haven demand from investors could have an even bigger, more immediate impact.

Perhaps one day headlines will appear throughout the mainstream media describing gold and silver price shocks that nobody saw coming.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2019 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in