The world’s largest political risk consulting firm is Eurasia Group.In an interview with CNBC news yesterday, company president Ian Bremmer predicted that in 2014, oil could easily fall to $80, or much lower.For more information on Eurasia Group, please click here now.
“Even without an Iranian deal, the Saudis are going to have to reduce production just to maintain a price floor above $80 [a barrel] by the end of first quarter," Bremmer said. If an Iran deal happens, we're going well under that. The Saudis won't be able to keep that going….” – CNBC news, Jan 6, 2014.
Barring a black swan event, lower oil prices are quite likely in 2014, and that should be viewed as very good news for gold investors!
Lower oil is good news because oil imports are the main cause of the Indian current account deficit (CAD).The current Indian government has done nothing substantial to reduce oil demand and transportation costs for its poor, so only lower oil prices in the market can affect the CAD.
The Indian government has, unfortunately, engaged in vicious attacks on the world’s largest gold jewellery businesses, and impoverished millions of goldsmiths.That has indirectly hurt Western gold stock stakeholders.In a page probably taken from a “bizarre and surreal actions” handbook, the current Indian government has begun openly discussing the idea of regulating the amount of gold an individual Indian bride can receive at her wedding!This type of freedom-restriction is not economic progress.
Indian government gold import restrictions risk creating a “gold jewellery stone age”, where Indian mobsters take total control of the world’s largest gold market. Until the restrictions bombshell exploded, Indians were the main end users of gold produced by Western mining companies.
Demand drives price.With demand taken off the table, it’s difficult for the price of mining stocks to rise significantly.
Gold ETPs (exchange traded products) are bought mainly by Western investors.They buy gold as a “flight to safety” trade.
Unfortunately, in the big gold demand picture, the amount of gold these Western investors need to buy, to make up for current lost Indian demand, is far beyond anything they are likely to purchase, unless there is a new and extremely dire financial crisis.
Another financial crisis that threatens the existence of the financial system will almost certainly occur, but it could be many years away.
For the sake of all gold market stakeholders around the world who want realistically higher prices, it’s critical to get the Indian import restriction yoke off the global gold market’s back, permanently.
Quite frankly, neither a temporary import rule change, nor a blip in ETP buying, are medicinally strong enough, to heal the gold price patient.
Luckily there is a potential white knight, dressed in real golden armour.India’s opposition leader Narendra Modi is pro-gold.He’s now the leader in national election polls, and is keenly endorsed by India’s most powerful bullion and jewellery associations.His home state of Gujarat has a population of about 60 million people, and a stunning unemployment of only about 1%.
To better understand the economic miracle this gold-endorsing corruption fighter oversees, please click here now.
If oil prices are dropping under $80, as “Modi Man” gets elected, he’s likely to take quick and decisive action to end import restrictions, and boost employment in the gold jewellery sector.So, I’m not selling any gold stocks.I’m buying them!
There’s more good news for gold and gold stock enthusiasts. From a technical perspective, oil also looks to be headed quite a bit lower.
Please click here now. That’s the daily oil chart.A significant head and shoulders top is in play, and it could morph into the head of a much bigger top pattern, with very bearish implications.
Beginning with lower oil prices, a sea change in Indian demand for gold mined by Western mining companies could produce much higher gold stock prices in 2014.
On that note, please click here now.This GDX daily chart shows significant volume since April, and now there’s a potential bullish wedge pattern breakout in play.
A two-day close above $22.75 is likely to attract momentum traders, and many individual issues are moving strongly higher already.
Please click here now.That’s the GDXJ daily chart.The technical action of junior gold stocks is much more bullish than for senior stocks.The wedge pattern is shaped better (the lines converge more), and the breakout is not tentative or potential.It’s solid!
Having said that, note the position of my stokeillator (14,7,7 Stochastics series) at the bottom of the chart.The lead line is now at about 78.Traders should be booking light profits here.My suggestion is to hold those profits in a gold ETP, rather than in US dollars.
If the rally continues, traders will still make some profits against the dollar, and if it ends, they can likely buy more stock than they sold, because gold bullion tends to decline more modestly than gold stocks do.
If oil rises in 2014, it’s likely to be related to the nuclear situation in Iran going out of control, and that’s good for gold.More likely, oil falls hard in 2014, and that’s also good for gold, and great for junior gold stocks!
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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form.Giving clarity of each point and saving valuable reading time.
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