Oil prices (NYMEX:CLV13) are trying to assess the potential risk to supply with the possibility of a more forceful response to the Assad Regime. Talk of U.S. warships being sent to the region in response to a chemical weapon attack had buyers come in early trading Sunday night but it is clear that petroleum traders have other issues to ponder. The market already pricing in high risks from Egypt to Iran as well as Syria has turned the focus around.
Emerging markets are begging for help. As the U.S. moves toward tapering, it is already having big ramifications for emerging market economies. Yet the Fed blew off international calls to take into account the threat of emerging markets fallout from QE tapering, saying U.S. monetary policy is driven by U.S. interests only.
Precious metals are being driven by surging demand from these emerging markets as the wealthy in those countries run to gold (COMEX:GCU13) to protect those QE windfall profits. The hot money that brought a boom to those currencies has now turned cold. Metal bears that delighted in the demise of the 13 year gold bull-run and gleefully amassed a historic short position and may get their heads handed to them as booth gold and silver are back in their bull trends. The gold haters that really do not even understand precious metals fundamentals are getting a lesson in the powerful force that gold and silver can be. Maybe they should learn from history or at least go back to the charts from the 1970s.
It is amazing to me how many people really don't get gold and silver, perhaps because of their misunderstanding of the many different reasons why people want to own gold and silver. They have this built in prejudice against the metal because they only get fixated on part of the precious metal story. They don't seem to understand that gold, like any other commodity, has a cost of production. If you fall below that cost then producers will have to produce less. Marginal producers will have to cut down and supplies will tighten. The recycle market is also down dramatically — a part of the gold market that accounted for over 60% of supply. The World Gold Council reported that while mine production in the quarter was 4% higher than a year ago, at 732t. Gold recycling fell 21%, leading to a total supply that was 6% lower than a year ago. Now add to that the talk of capital spending cuts and more mine closures the physical side will dry up quickly as the demand surges. There are others that say gold is fool's gold because it really has no value as a financial instrument. Well if that is true than central banks across the globe have been fooled as they have added to their reserves for 10 quarters in a row.
Not to mention jewelry demand, which according to the World Gold Council Globally, jewelry demand was up 37% in Q2 2013 to 576 tons (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. There were also significant increases in demand for gold jeweler in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%. By the way these are also the countries that will most be impacted by the Fed’s taper back program and people in those countries will do what they can to protect their wealth.
Which brings us back to oil; strong manufacturing demand and weekend worriers gave us a ride. But ample supply in the U.S. as a seasonal slowdown could weigh on prices as well. Geo-political risks remain high as Libya is still seeing protestors impact supply. European refiners have lowered run rates in response looking to the U.S. and their surging oil production and refining capacity to pick up the slack. Falling imports and rising exports are another reason that gas prices fell in the latest Lundberg Survey.
Trilby says that the average price for regular gasoline at U.S. pumps fell 3.99 cents in the past two weeks to $3.5586 a gallon. The average, which reached a year-to-date peak of $3.795 in the period ended Feb. 22, is about 20.05 cents below the year-earlier price of $3.7591 a gallon. Trilby told Bloomberg News that "We have tremendous gasoline production occurring here and American refiners are running at very high rates of capacity, there is no tightness in supply; if anything we have an oversupply of gasoline in the United States."
Ethanol futures went crazy as well as drought conations and tight cash markets are making the markets nervous. Biofuels makers might get nervous as beans are flying as a late start to the crop is now being threatened with a period of hot and dry.