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Metal Prices Post Brexit

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Metal Prices Post Brexit

With Britain voting by a narrow margin to leave the European Union on Thursday, we are truly witnessing a historical moment.

If it stays the course, the ramifications for the global economy and the future of Britain will be truly fundamental in nature.

If its politicians backtrack and the movement fizzles out, it will be a watershed moment in the future of democracy as the guiding principle of national decision-making.

In this article, we go through its effects on the price of metal, in both the present and near future, but first a few words on the referendum itself.

It actually happened

While it remains the most cherished political system in most developed countries, and is put forward as the epitome of human political development and most virtuous and efficient political system, democracy has fundamental problems, pointed out by many of its most arduous proponents.

Churchill famously mused of the biggest argument against it being a short conversation with the average voter.

People often vote against their best interests, and many political commentators and citizens have said that the referendum should be ignored or re-run, as the result was based on lies and misinformation.

Notwithstanding that, the result happened.

Whether it was the belief that immigrants were leading to a reduction in the living standards of the working class, the European Union being an undemocratic and opaque governing body imposing unnecessary or excessive regulation, or the need for Britain to switch its focus from Europe to the Commonwealth and the rest of the world, people voted to leave an institution it had been part of for 40 years, in some way, shape, or form.

Should we have even had a vote?

Many people, both before and after the referendum, have pointed out the madness of leaving such a monumental and complex decision to the electorate.

Even if you were to ignore the media and conduct your own research (during which you will still struggle to come across a source without bias), it would be difficult to make a decision.

Most people voted on either feelings, personal interest, or as a middle finger to the establishment:

  • Significant feelings for the Leave side included nationalism, patriotism, and sovereignty: the Remain side sentiment was one of Pan-Europeanism, compassion, and solidarity
  • Personal interest for the Leavers would include issues such as a desire to see less non-English people in their own towns or less regulation for their business; Leave self-interest could include a desire to be able to travel and work freely in the European Union, or have a wide labor pool for their business (this contradiction shows itself in the split in the business world between Leave and Remain)
  • The middle-finger-to-the-establishment line of thinking is obvious: ‘politicians are in it purely for themselves and don’t care the little people; they’re telling me to do one thing, so I’ll do the other’

These factors, coupled with believing whatever their corresponding leaders told them, whether it was economic apocalypse by the Remainers or stampedes of Turks in future (as they gain EU membership, a contentious topic, but a frivolous one as it’s unlikely) by the Brexiters, probably make up the majority of voters’ reasons for their decisions.

However, saying that they shouldn’t be given a vote on this because they couldn’t make as calculated and rational a decision as politicians is a dismissal of the principle of direct democracy, and a criticism of democracy as a whole.

Shouldn’t all decisions be left to the experts then, including during a general election?

Shouldn’t a technocracy, more like Singapore, be the best system if decisions should be taken by those with adequate knowledge, regardless of how finely their views correlate to the wider public?

Questions for another article perhaps.

Now on to the more important stuff.

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What’s the price of democracy? Short term

While Gold has seen its price skyrocket, industrial metals have seen a fall in price, for two simple reasons: the dollar has gained on the pound, and economic uncertainty is now rife globally.

Below is a graph showing the US dollar index since the beginning of the year:

p4.1

We’ve circled the rise at the end of the graph in red.

You could abseil down that no problem.

Sterling has fallen sharply since the vote as has the Euro.

So holidaying in Europe won’t be the financial disaster many Brits expected, at least in the short term, but crossing the Atlantic will see them poorer than they would have been at any point the last 30 years.

As such, with a strong dollar bearish for the prices of industrial metals, base metals fell all of Friday.

Whilst not definitive, the pound and the euro will continue to fall as long as there is such uncertainty around Britain’s political and economic future.

The worst case scenario, Britain cutting ties and trading with Europe on WTO (World Trade Organization) rules, where there would be tariffs, would be disastrous, and it is this risk that is scaring investors.

Such was their fear, a huge selloff in global stocks was kick-started by the Brexit vote, including in the US.

With certainty already rampant as corporate profits decline, job growth stalls in the US and China, and doubts about the Fed’s capabilities regarding growth encouragement, that has compounded the effect.

This is in addition to some countries seeing recessions. We are now eight years since the 2008 financial crash, and in terms of the cyclical cycle, it would not be surprising for another one to afflict large parts of the world.

An already weak market is being hurt further by Britain’s decision to leave the EU.

Stock markets and metal prices don’t correlate on a month by month basis, but the latter cannot be expected to rise at a time when the former is in such turmoil.

How about the medium to long term?

In short, we predict that as the dollar falls after its currently monumental rise, and producers cut their supplies, metal prices will actually rise.

The idea is that with continuing falling stock markets, the Federal Reserve will backtrack on its September show of confidence by potentially decreasing interest rates or perhaps even put them into negative territory as some central banks have done recently.

These include the European Central Bank and the Bank of Japan, who together represent a sizeable portion of the world economy.

This wouldn’t be great news for those investors looking for strong dividend yields, and it would put further pressure on the dollar.

However, it might prove necessary as markets continue to take a battering, and no one wants another 2008 slump.

p4.2

Currencies will stabilize after the EU and Britain decide what their future relationship will be (more on this later).

These are just theorizations, and you metal investors need better than that.

Our advice is to monitor the markets continuously and keep up to date with the latest in political and economic developments from the USA, Europe, and China.

Volatility is certain, so batten down the hatches and prepare to weather this storm.

What about Gold?

Gold, however, has had a field day and any smart investors who followed our advice would have seen their investment grow thanks to Thursday’s vote.

The following graph shows the sharp growth in price upon the news that Britain had voted out in the early hours of June 24th: 

p4.3

We’ve spoken about gold’s role as a safe haven for investors thanks to its prestige and non-corrosive qualities.

Over the last 100 years, it has held a remarkably constant price, even if it suffers turbulence from time to time.

One person who shrewdly gained from Brexit was George Soros.

You may remember him as the man who committed treason and bet against the pound in 1992 when it was withdrawn from the Exchange Rate Mechanism that had proved to be nothing short of a disaster.

He reportedly gained £1.5 billion from this move.

Prior to Thursday’s vote, he purchased some $200 million worth of gold, and you can calculate his gains yourself by looking at the increase in its price in the graph above.

Final Word

Cameron initially promised the referendum as a manifesto pledge in order to stifle the monumental rise of the UK Independence Party, commonly known as Ukip.

He also attempted to appease Eurosceptic members of his own party, almost half of which declared they would be voting to Leave.

Cameron expected a re-run of the Scottish referendum, where economic arguments prove to win the day in the face of fervent patriotism and emotional campaigning about sovereignty and independence.

This backfired drastically.

The Financial Times predicted that while the base price of industrial metals would hardly be affected by a vote to leave, metals like copper, aluminum and zinc closely track the US dollar’s movements, with copper being the most strongly affected by this.

Meanwhile, Metal Bulletin pointed out that Britain as an export target represents around 1% of world metals, and so any recession it experiences because of a loss of single market access won’t affect the wider metals market drastically.

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Gold Prices Reach Historic High, Breach $2,000 Level

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Gold Prices Historic High

For the first time ever, gold prices reach a historic high level of $2,000 today, even reaching a high of $2,049.18. Judging from the way the markets are still active, there are signs it’s still going up. Buoyed by a week dollar, low Treasury yields, and fiscal stimulus, gold keeps rising. On Monday, worldwide holdings in gold ETFs totaled 3,365 tons, and prices have surged more than 30% YTD. As prices rise during the day, there are yet no indicators that the bull market for gold is ending soon.

Related Article: How To Buy Gold For Your Investment Portfolio

Safe Haven

Along with government securities, dollars, and others, gold is a safe haven investment. Safe havens are assets that investors turn to during market turmoil. investors turn to during market turmoil. These stocks usually keep, or even gain value during periods of hardship. As they aren’t correlated with the economy, safe haven value can rise in value in a market crash.

While the gold prices reach historic high. Gold has profited from the pandemic and its resulting economic downturn. While US Treasury yields have dropped to below-inflation levels, lowering their value. Gold meanwhile, does not pay an income. In a booming economy, interest levels go high, which means higher yields for bonds or securities. For gold, the lack of yields makes it strong when the market crashes.

Gold Rush

The Fed’s earlier decision to lower interest rates to near-zero pushed investors to look into gold. It serves as an insurance asset in case stock prices go down. With the depreciation of the dollar, gold is the current safe haven choice for investors. With a weaker dollar, other currencies rush to buy gold, hence the historic highs. According to Rhona O’ Connell of StoneX Group: “Gold is a haven.  It doesn’t have anyone else’s political or financial risk associated with it.”

Other factors contributing to the rise in gold prices are international in nature. The tension between China and the United States over trade issues is one. Lately, some analysts think that the recent Lebanon explosion also pushed prices higher.

Stimulus plans also have an effect on prices. Some see the rising stock prices on news of a new stimulus package as a signal. It means stimulus money is powering the stock rally, and might not be sustainable.  This also leads investors to turn to gold instead.

Market strategist Margaret Yang believes the rise will continue in the next months. She said today’s low-interest rates and fiscal stimulus makes gold bullish for the mid and long term. And with the elections in November, gold prices may swing further depending on the winner. Analysts think that gold can breach the next psychological barrier of $2,500 within the year.

Pushing Precious Metals

Gold isn’t the only precious metal winner lately. Silver prices have also spiked to more than 30% year to date. Some analysts even believe that silver has the potential to outperform gold. Once the world economy recovers, industrial consumption will return. This in turn will spur demand for silver, which many industries use.  Already, the gradual reopening of industries has increased demand for silver. Its increasing applications in the medical and telecommunications fields helped with the demand. Apart from silver, platinum and palladium are also enjoying high prices this year.

Watch this video as the gold prices reach a historic high level of $2,000:

Now that gold breached the $2,000 level and looks to rise even more, are you considering investing in gold?

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Latest Update On Oil – Expected to Settle Between $45 and…

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“Oil is going to a new price point because of the revolution in production,” said Bill Perkins, chief investment officer of energy-focused hedge fund firm Skylar Capital Management. Perkins believes the price of crude could fall as low as $45 a barrel. He is personally short, a bet that the price of the commodity will drop. He believes oil will settle between $45 and $80 a barrel in the next year.

“Companies are harnessing amazing new technology to destroy the traditional energy value chain,” Perkins said. “There’s a lot of money to be made on that.” “U.S. energy names remain a significant net exposure for equity long/short managers who added longs and cut shorts after October’s trough,” the report said. “If pressed, one could interpret this positioning as bullish for energy stocks.”

Andurand thinks crude might hit $50 a barrel within the half-moon of 2015 and so rebound to a high of $70 within the fourth quarter. He also said the oil market is oversupplied by between 1.5 and a couple of million barrels per day, given weak demand, low disruptions to produce and enhanced production by nations that do not belong to the Organization of the oil mercantilism Countries.

“OPEC is not the swing producer anymore. U.S. shale oil producers are, but will take more time to react to prices than OPEC—it is a game changer that will lead to more volatile prices and bigger price ranges,” he added.

Morgan Stanley aforesaid the worth would wish to fall as low as $35 or $40 a barrel to prevent production and rebalance provides.

Still, the bank noted that the worth can doubtless rise eventually.

“Oversupply is probably going exaggerated and therefore the market is also content regarding side risks,” the report aforesaid.

Read More at CNBC

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Commodities

Investing in Energy Markets Part 2: Oil, Gas and Energy

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It’s no secret that the energy industry is very profitable, with oil and gas making up 80% of the market.

 

Thus, these two resources attract the most people. They are the best energy investment resources due to high demand and wide range of options. However, with energy scares fresh in our recent memory and the climate change movement greatly affecting energy policy, new alternatives are constantly being sought.

Terror group ISIS may make $3 million a day selling oil

Everything that we do requires some type of energy. As a result, the price of energy affects the going rate for other commodities as well. When the price of oil increases, the price of transporting goods goes up as well.

That is why the cost of milk fluctuates and why your favorite imported coffee beans are more expensive than Folgers. Factors that contribute to these prices include geopolitics and natural disasters, but can never truly be accounted for in full. That is one of the underlying points to understand and accept about energy markets. Something can always go wrong. Typically, it doesn’t, but when it does things can get hairy and fast.

TYPES OF ENERGY SECTORS: That could affect your Household

Nuclear Nuclear power actually produces 1/10th of the world’s power, without emitting carbon. The United States and China have roughly 75% of the world’s nuclear plants with India and Russia also tapping into the market.

“Green” and renewable energy companies You can invest in different companies that place an emphasis on renewable resources by using the stock market. This option is optimal for investors who like the idea of green technology but do not now want to run the risk of investing in developing companies directly. This market has always been tricky from an investment perspective due to volatility. If you have an appetite for risk, however, this is a good place to look.

Modern Energy (solar, wind, geothermal, transportation, efficiency) Modern energy is made up of three major components or categories. They are wind, solar and biomass. The renewable sector is expanding at a rapid rate. We have witnessed a steady employment increase in the energy sector since 2011 with no end in sight. All types of investors and speculators are flocking to the natural resource markets in attempts to get out ahead of the renewable energy trend that could be the way of the future.

Big Oil In 2010, the world market for oil witnessed an incredible increase of 32%, to over $2,100 billion. According to estimations of oil segment professionals, the market’s value will hit $2,683 billion in 2015. The competitiveness of the global market of the crude oil is explained by its limited resources and mankind’s insatiable appetite for growth. This factor should not be disregarded easily. Our desire for more explains the majority of the energy marketplace.

Gas sector The market of natural gas reached $18.5 billion by the end of 2011. Demand for gas has recovered to match and surpass pre-recession levels. The US prices for gas are half of those in Asian countries and the EU. Gas demand decreased 3% in 2009, but at present is on the rise.

Electricity Buying the stock of electricity companies is the preferred way of entering this marketplace. The majority of the participation in electricity markets, however, takes place in the futures markets. Since power companies are constantly projecting and calibrating their loads, the futures market is the only place where investors with this sort of risk profile will feel that they belong.

Coal Many non-coal energy sectors directly depend on the performance of coal because burning coal has been proven to produce enough energy to support high demand. Due to recent regulations in the US by the Environmental Protection Agency, coal has taken a minor hit, but until a massive, institutionalized adoption of newer technology, it is highly unlikely coal will be going anywhere for the foreseeable future. In other words, coal is very much a barometer for this market. Though it is unlikely to happen any time soon, a massive dip in coal production would likely signal the emergence of a new viable energy source.

Hydro Hydropower energy is still very limited but there has been over $75 billion in investments pledged to R&D before the year 2020. There are some companies worth checking into, but for now this is very much a long term play.

Energy Funds These funds are established with companies related to the energy field. Be aware that some energy funds are more successful than others and produce a higher return than others. Often times, the energy funds are established to diversify various portfolios and minimize risk.

Read more on How Natural Resource Distribution affects your wealth

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