Gold hits record $876 on crude oil, dollar

Gold rose to a record in London and New York as costlier crude oil and a weaker dollar spurred demand for the metal as a hedge against inflation and an alternative investment. Gold for immediate delivery rose as much as $17.84 to $876 an ounce in London, exceeding the previous record of $868.89 set Jan. 3. Oil is trading within less than 5% of a record. Gold last reached an all-time high in New York in 1980. Spot prices advanced 31% last year, the biggest gain since 1979, when U.S. inflation was more than 13%.

- In time to come, $1000 gold will wake a few more people up, like $100 oil did. Both gold and oil are now truly operating in unchartered territory. Believe it or not, both are still undervalued, and we ain't seen nothing yet.

Schizophrenic oil markets

The oil markets have been schizophrenic for the past 2-3 months, ever since breaching $85 back in Oct 2007. A couple of recent headlines :

Oil trades near $95 after falling on slowing demand growth
bloomberg.com (8 Jan 2008, 9.37am) :

Crude oil traded near $95 a barrel in New York after falling the most in five weeks yesterday on speculation slowing global economic growth will reduce demand. Oil, copper and nickel dropped yesterday after an index of executive and consumer sentiment in Europe fell to a 21-month low. The contract dropped $2.82 to $95.09 yesterday, the lowest close since Dec. 24 and the biggest one-day decline since Nov. 28. Prices have fallen 4.8% from the record $100.09 a barrel reached on Jan. 3 after a report showed U.S. unemployment jumped to a two-year high last month and share prices slid to a one-month low.

Oil rebounds on expectation investors may buy more commodities
bloomberg.com (8 Jan 2008, 11.15am) :

Crude oil rebounded after its biggest decline in five weeks on the expectation that investors may buy commodities as an alternative to slumping equities. Oil futures gained 57% in 2007, outpacing the 3.5% increase in the U.S. Standard & Poor's 500 Index over the same period. Asian stocks fell for a fourth day today, with the MSCI Asia Pacific Index extending its losses this year to 3.4%. "The performance of the stock market is speeding up the flow of capital from there into commodities," said Rowan Menzies, head of research for Commodity Warrants Australia Ltd. in Sydney. Crude oil for February delivery rose to $95.65 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

- So, earlier in the morning, we learn that slowing economic growth leads to lower demand for oil, and that's why oil prices were down overnight. Next, later in the morning, we learn from the same news source that oil has rebounded because investors are expected to buy more commodities, as oil has gained 57% vs a mere 3.5% gain in the S&P 500 in 2007.

Now that oil prices have come off the historic $100 mark, let's look again at some of the possible crude support levels :

The possible support levels now stand at 95, 89, 85, and "what I think are not likely unless the global economy is flushed down the toilet", 78 and then 69. From the previous session on NYMEX, I see that it bounced off $94.47 "overnight" (from a Singapore point of view).

If the oil markets prefer to remain schizophrenic, NYMEX crude could bounce between $85 and $100 in consolidation until it's happy and breaks out decisively above $100. There is a rather steep, short-term up channel which I'm not so sure of, but, who knows?

But what about the upside targets? Let's just say I'm waiting for $125 oil, and then $150 oil, and then $200 oil. It will be fun.

See also :

1. Crude support levels

(2008-01-08 12:59:33 SGT) [Biz] Permalink Comments [1]

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