Global markets are seeking safety in an unsafe world. When Secretary of State John Kerry seemed to lay the groundwork for a potential use of military force to respond to the use of chemical weapons against civilians, the global markets started to tank. Kerry said that "President Obama has also been in close touch with the leaders of our key allies, and the President will be making an informed decision about how to respond to this indiscriminate use of chemical weapons. But make no mistake: President Obama believes there must be accountability for those who would use the world's most heinous weapons against the world's most vulnerable people. Nothing today is more serious and nothing is receiving more serious scrutiny."
Yet oil (NYMEX:CLV13), while up a bit, was buffered by the return of Libyan oil and because the market has already priced in a lot of this type of risk.
In gold (COMEX:GCV13) and silver, the move may be just beginning. Gold seems to be a place where safe harbor is being sought. Not only from those crazy gold bugs that are worried about the potential for World War III coming out of the Syrian conflict, but because of the plunging currencies and stock markets in the emerging markets. Gold bears that sold gold because there was no inflation maybe could not see it because they were looking in the wrong places. Inflation and the falling purchasing power in emerging market economies as the Fed looks to scale back on bond purchases may not be as bearish as many traders originally thought.
Hedge funds are now back embracing the long side of the precious metals as the net-long position in gold increased 29% to 73,216 futures and options last week. As well as the long positions in 18 U.S.-traded commodities jumped 34%, the most since July 2010, as wagers on copper and soybeans more than doubled as reported by Bloomberg News.
Gold bulls, if you remember, abandoned the investment side of gold when they thought all of Europe's problems were solved. When Cyprus got its bailout and it was rumored it was backed with their gold reserves the market tanked. Yet European risks are coming back with the fact that Greece will need another bailout and political turmoil in Italy surrounding Berlusconi. Central Banks around the globe have never stopped buying and India is trying to slow gold purchases to try to keep dollars from fleeing the country.
It seems like the 13-year bull market in gold that briefly dipped into bear market territory is now back in its bull trend and on track to fulfill its long term technical destiny to make an all-time adjusted for inflation high around $2,400.
Which brings us back to energy, Brent Crude hits the highest level since April as fears are growing about the size of the potential conflict. All the major players in the global market are at risk and taking sides. The United States and Saudi Arabia are the power producers on one side and Russia and Iran the power producers on the other side. Right there the countries with majority of the world's proven reserves are on opposite sides. Then you have Iraq, OPEC’s second largest producer, see risk of spillover violence in a country that has seen a recent upswing in terrorist attacks.
Yet at the same time falling emerging stock markets may raise questions about demand. Yes, according to The Energy Information Administration the world's consumption of gasoline, diesel fuel, jet fuel, heating oil, and other petroleum products reached a record high of 88.9 million barrels per day (bbl/d) in 2012, as declining consumption in North America and Europe was more than outpaced by growth in Asia and other regions, yet the type of rabid demand growth we saw in the last decade will not happen. Besides the fact that the U.S. has unleashed its production with shale and fracking and directional drilling, the peak oil "frenzy will not add to the buying. The other reason is the U.S., the world's largest consumer, met 87% of its own energy needs in the first four months of 2013, on pace to be the highest annual rate since 1985, according to EIA data.
Do you want to lower greenhouse gas emissions? Use more natural gas! U.S. Energy Secretary Ernest Moniz said that the U.S. natural gas boom has played a major role in reducing greenhouse-gas emissions! Bloomberg News reported that "Natural gas futures climbed in New York for the third time in four days as meteorologists predicted above-normal temperatures that would stoke demand for power generation. Gas gained 0.8% as Commodity Weather Group LLC in Bethesda, Maryland, said the weather may be hotter than usual in most of the lower-48 states through Sept. 9. The high in Houston on Aug. 31 may be 96 degrees Fahrenheit (36 Celsius), 5 more than average, according to AccuWeather Inc. in State College, Pennsylvania. "This heat wave is giving the market a boost," said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. "Power demand has been a lot higher than anticipated and buyers are creeping into the market." Natural gas for September delivery rose 2.8 cents to settle at $3.513 per million British thermal units on the New York Mercantile Exchange. Trading volume was 47% below the average at 2:45 p.m. Prices are up 4.8% this year.”