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Gold would be $1,450 if it followed oil price gains of the past three days

 -- Published: Tuesday, 1 September 2015 | Print  | Disqus 

By Peter Cooper

The spotlight has been on the oil price over the past three trading days with a spectacular bounce of 27 per cent. Apply the same gain to the gold price and we would be looking at $1,450 an ounce.

Experts are uncertain exactly why the oil price has rallied. There have been no fundamental changes to the oversupply or demand. If anything the economic data out of China points to weaker demand.

Commodities oversold?

Markets do become oversold. Gold is another case to consider. Physical demand has picked up strongly since the Chinese equity crash while future supply is threatened by the low price.

If the last big sell-off in oil during the global financial crisis of 2008-9 is anything to go by then the swing back for the world’s most important commodity could be just as dramatic as its decline and fall over the past year.

Back then oil prices also rather mysteriously turned around at $34 and headed back over $100 and stayed there for several years before the current slump. It was mysterious because the world economy only recovered very slowly.

The UK, for example, is only just back to its pre-crisis GDP. Could the price recovery have had something to do with the massive money printing of that time? China’s economic stimulus package was equivalent to half its GDP, the biggest stimulus in history.

Historic precedent

Of course it was not only oil prices that benefitted. Gold and silver prices actually did better. Gold trebled from its crisis low and silver was up eightfold.

Are we now going to see history repeat itself? Certainly the 27 per cent spike in oil prices is pointing in that direction.

If so expect $1,451 gold and $23 an ounce silver to be but stepping stones to much higher prices. Volatility for commodity prices after the recent sell-off can really only go in one direction.

Central banks have only one policy response to crashing global financial markets and that is to print money. Ergo higher oil, gold and silver prices are coming.

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 -- Published: Tuesday, 1 September 2015 | E-Mail  | Print  | Source:

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