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How to Invest: Oil’s Biggest Spike

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The oil industry has reached peaks, that are driven by technology and abilty to drill.

Analysts tell us their full evaluations of the industry in regards to investing thru the end of the year.

Dan Dicker, TheStreet.com SR, Contributor share his opinion on the biggest risks for oil and why he is gaming on another super spike. Oil analyst Arjun wrote of an oil super spike, with prices reaching $200 a barrel. Geopolitical tensions abound across the world; the Middle East apparently hasn’t been this rickety in years. Commodity traders and analysts have wondered why oil hasn’t gone higher.

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Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed

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Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed

The Federal Reserve wrapped up its last meeting before the November elections. It announced that it would keep rates at essentially zero until at least 2023. This serves as a signal that it doesn’t see inflation as an issue at all for the foreseeable future.

Fed Chairman Jerome Powell said, “We’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate.”

“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the Fed’s post-meeting statement said.

Uncertainty and the Stock Market

However, the Fed’s latest projections have core inflation staying below their 2% target until 2023. This leaves many observers unsure of the Fed’s actual plan to spur the inflation they desire. This uncertainty caused the stock market to drop after the announcement.

“He noted that targeting an inflation overshoot for ‘some time’ as the statement says, means that they are not targeting a ‘sustained’ overshoot. So how long is ‘some time’ if it isn’t sustained?'” asked AB economist Eric Winograd. “That imprecision is a problem that the committee is going to have to solve to reap the full benefits of the framework shift. It’s not a coincidence that the stock market, which had been in positive territory, flipped negative after the chair’s comments.”

“He’s the great and powerful Oz. Investors got duped. They thought enhanced forward guidance meant something, but when they peeked behind the curtain they realized the Fed didn’t do anything, and the market rolled over,” said Michael Arone, chief investment strategist at State Street Global Advisors.

Jon Hill, a senior fixed-income strategist at BMO, added “This is dovish – lower rates for longer, higher equities, weaker dollar. The Fed is saying we’re not hiking in 2023, maybe in 2024 … What they’re saying is these are our goals. We expect to have just barely met them and even then, they’re not raising rates.”

Stimulus and Economic Recovery

Stepping ever-so-slightly into the political realm, Powell said that Congress should pass another stimulus package to support the economic recovery. He then identified unemployment aid, small business relief and funding for state and local governments as three key areas.

“More fiscal support is likely to be needed,” Powell said. “The details of that are for Congress, not the Fed.”

Republicans have repeatedly stated that they won’t provide additional funding to bailout poorly managed cities and states as part of any additional stimulus bills.

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Pierre Lassonde Pt. 2: Gold Could Hit $20,000 An Ounce

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Pierre Lassonde Pt. 2: Gold Could Hit $20,000 An Ounce

Yesterday we had the first part of a recent interview by Kitco News with Pierre Lassonde, who retired as chairman of the board at Franco-Nevada earlier this year.

In today’s article, we highlight Lassonde’s comments on gold and why he thinks the Dow/gold ratio could hit 1:1 parity.

Lassonde says that retail interest in the gold market is evident by the record inflow into the GLD gold ETF this year, which has already set a record.

“If you look at gold itself, just look at the gold ETF. Look at GLD. GLD is up over 900 tons this year alone. They’ve had more inflow of money in the first 9 months of this year than any year in the past 16 years. It’s been public since 2004. It’s a record inflow of money into GLD and that’s also a precursor to what’s happening in the equity sector.”

He also says that gold prices will move higher should Democratic nominee Joe Biden win the November election. Lassonde says all the money that will be printed to finance all the new spending.

“If Biden gets in and they decide to do the kind of medicine we have in Canada, the costs are just going to blow out, they are going to have to print more money, all of that is going to fuel the gold price up.”

How high the price will rise is anyone’s guess, but Lassonde says he expects that at some time in the next 5-10 years, we will see the Dow/gold ratio to reach parity at 1:1.

When asked if that means gold will climb or the Dow will fall, Lassonde says he expects a combination of the two, but mostly a slight Dow correction with a massive increase in gold prices.

“It’s hard to see the Dow going down to 10,000 or 12,000. Could it happen? Yes, but I find it very difficult. Could it go down to 20,000? Very possibly. 17,000? Yes, 15,000? Could the gold price go up to $15,000? Absolutely. That’s what I’m talking about, but I don’t think it’s tomorrow morning. I think it’s sometime in the next 5 to possibly as long as 10 years.”

Lassonde says there have been two instances of the Dow/gold ratio reaching 1:1, and both times it occurred for different reasons. This time, he thinks we get to 1:1 due to all the money printing by the Federal Reserve.

“It’s instructive to look at the past. Because twice when it’s happened, it’s happened for very different reasons. Back in 1933, the Dow lost 90% of its value between 1929 and 1933. It went from 360 to 37. The gold price went from $20 to $36. So the gold price almost doubled but the Dow itself went down 90%. In 1980, the Dow had gone down from essentially 1000 to 600 from 1966 to 1980, it came back up to 800, but the gold price as we all know, went from $35 to $800, which is 24x from the beginning. So very, very different responses to different times.”

“The ratio has been 1:1 twice in the past. It takes a 40-50 year period if you look at 1930, 1980, well we are now at 2020, so 40 years, so sometime in the next 5, 10 years I think we are going to see 1:1. But I didn’t know how we were going to get there. With COVID, I think we’ve seen the answer in a sense that if you look at our neighbor to the south, the Federal Reserve, they are printing $3 trillion, they are talking about another package in the $1 trillion to $2 trillion.”

Lassonde does caution that if we see 1:1 parity, we shouldn’t expect $15,000 or $20,000 an ounce gold to stick around for very long. He said based on history it might only be a day or two, or a few weeks at most.

“The key question here is how long is it going to be there? Don’t forget in 1980 the gold price was $800 for less than a day. If you look at the entire quarter the gold price was $675 and if you average out for the year it was less than $600. So yes, it did go to $800, but it was there literally for a day. In 1933 though it went on a little longer than that but it was certainly less than a year, I think it was probably closer to three months or something like that. So the key question is how long will that ratio be 1:1. How long are we going to see the gold price at these crazy numbers. And then what will be the inflation? What’s the dollar going to be worth? I don’t know.”

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Former Gold Company Chairman: Gold Miners ‘Never Had It So Good’

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Former Gold Company Chairman: Gold Miners ‘Never Had It So Good’

Pierre Lassonde, who retired as chairman of the board at Franco-Nevada earlier this year, said that gold miners have “never had it so good” during a recent interview. He also said that he expects the Dow Jones Industrial Average/gold ratio to approach parity in the next 10 years.

When discussing gold companies seeing an increase in margins with prices moving higher, Lassonde said this situation is different from when gold prices ran higher in the early 2000s.

“This is very comparable to the kind of margin expansion that we saw in the early 2000’s. Don’t forget, gold bottomed in 2001 at $250 to rise to $1900 by 2011. So the rise in gold price, everybody thought would lead to enormous margin expansion. (But) they never got the kind of multiple you were expecting because there wasn’t any margin expansion.”

Lassonde said back then, companies weren’t able to increase their margins due to higher energy costs.

“There are two reasons for that. One, is the oil price kept going up, and energy as we know is 25% more or less of the cost of operating gold mines. So as the energy price went from $25 a barrel to $140 a barrel, the margins were not expanding as fast. And then because during the late ‘90’s the gold price kept going down, mining companies essentially stopped exploration and when the gold price started to come around what they did because they didn’t have any reserves, they dropped their cutoff grade. And so they were producing the same amount of gold but were moving twice as much dirt and that too costs a lot of money and you had no margin expansion.”

Gold, Gold Miners, and Oil

Today, gold companies are benefiting from stable oil prices and that means a huge increase in margins when costs aren’t increasing but profits are.

“The difference today is very, very different. Number one because oil prices are flatlining. When you look at oil prices today, $37 (a barrel), but when you look at the oil price for the next year, you can look at the contango, it’s almost nothing. So that’s a 25% component of the miners of their costs. The gold miners today have never had it so good. The margins that they are producing are the fattest, the best, the absolute unbelievable margin they’ve ever had. Ever.”

Not a Cause for Concern?

Investors shouldn’t worry that they’ve missed the move in gold prices as there is plenty more upside left, said Lassonde. He said the proof is by looking at who just took a major stake in a gold company.

“The answer to that was provided a couple of weeks ago when Warren Buffett bought half a billion dollars worth of Barrick Gold at today’s price. And what is Warren Buffett seeing? This is not an individual that bets on the gold price. He doesn’t bet on commodities. What he’s seeing is he can buy Barrick at a fraction of the kind of multiple that he believes is the right multiple. So no, you haven’t missed the boat at all, even though the gold stocks are up double from the bottom.”

He says this is just the latest secular bull market in gold, the seventh one he has been a part of , and they all progress the same way.

“You’ve got to think, at the bottom, six months, a year ago, the stocks were so cheap but nobody was interested. Nobody was interested. It’s the same old story in our space. At the bottom of the market, there’s never enough money and at the top there’s way too much. And we’re barely off the bottom at this point in time and there’s a lot to go before we reach the top.”

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