What could change this race to the bottom would be the announcement of a production cut from the Texas Railroad Commission which regulates oil and gas production production in Texas, the world’s third largest production area. They have the authority to step in and order a reduction, just like they did in 1973. Such a move would dramtically increase the chance of dialogue and for Russia and Saudi Arabia to step back from the their war of words and war on price.
For the sake of the global economy and the wellbeing of everyone, both producers and consumers, the main focus over the next 12 months is to avoid reaching the top of the tank as the price would otherwise collapse. A production cut across the board of 10% would ensure that the oil market avoid this scenario. These are extraordinary times that requires extraordinary decision.
Gold’s failure to rally over the past few weeks, as Covid-19 spread and economic uncertainty rose, has triggered a great deal of uncertainty about what role it plays. In the short-term, the metal is being challenged by a continued demand to raise cash, a surging dollar and rising real yields as inflation expectations take a tumble.
We maintain a positive outlook and draw some parallels with what happened during and after the global financial crisis in 2008 and 2009.
Back then the eventual recovery started in gold mining stocks before moving to gold and it took another few months before the stock market finally bottomed out. With this in mind, we are keeping a close eye on gold mining stocks, through the Vaneck Major Gold Miners ETF (Ticker: GDX:arcx).
Gold has now been through a 15% top to bottom sell-off before once again finding support at $1450/oz. The correction has obviously once again raised the question of whether gold is worth it’s tag as a safe-haven and diversifier. We believe the long term reasons for holding gold has if anything been strengthened by current developments.