Gold is doomed

https://www.washingtonpost.com/news/wonk/wp/2015/07/25/gold-is-doomed/

A little less than four years ago, the world looked like it was about to end and gold hit an all-time high of $1,895 an ounce.
The United States had manufactured a debt crisis, and Europe hadn't been able to manufacture a solution to its actual debt crisis, so panicky investors sought safety in the same place they had for 5,000 years: a shiny rock. The only problem, as you might have noticed, is that the world did not, in fact, end. It's still here, so gold prices aren't. The yellow metal has fallen 42 percent from its peak—and 8 percent in just the last month — despite the fact that the Federal Reserve has printed more than $1.5 trillion in this time. That, after all, is what gold aficionados said would make its price go to the moon, if not infinity and beyond. So what's happened? Well, exactly what economists said would happen.
When you think about it, a bet on gold is really a bet that the people in charge don't know what they're doing. Policymakers missed yesterday's financial crisis, so maybe they're missing tomorrow's inflation, too. That, at least, is what a cavalcade of charlatans, cranks, and armchair economists have been shouting for years now, from the penny ads that run on the bottom of websites — did you know that the $5 bill proves the stock market is on the cusp of crashing? — to Glenn Beck infomercials and even hedge fund conferences. Indeed, John Paulson, who made more fortunes than you can count betting against subprime, has been piling into gold for six years now, because he thinks "the consequences of printing money over time will be inflation." They all do. Goldbugs act like the Federal Reserve's public balance sheet is a secret only they have discovered, and that it's only a matter of time until prices explode like they did in the 1970s United States, if not 1920s Germany.
But economists do, for the most part, know what they're doing. Sure, they missed the crash coming in 2008, but that wasn't because they didn't understand how bank runs work. It was because they didn't understand that unregulated lenders had become vulnerable to runs. And the economists who haven't forgotten their history knew that this inflation fear mongering was all wrong too. Specifically, there's a difference between the central bank buying bonds, a.k.a. printing money, when interest rates are zero and when they're not. In the first case, money and short-term bonds both pay the same amount of interest — none — so, as Paul Krugman has explained over and over again, printing one to buy the other won't change anything. Banks won't lend out any new money, and will just sit on it as a store of value instead. That's what happened when interest rates fell to zero in 2000s Japan, and it's what is happening now in the U.S., U.K., Japan, and Europe.
That didn't mean, though, that gold wasn't a good short-term investment. It was. Just not for the reason goldbugs thought. Now, the problem with gold is it doesn't pay any interest or dividends, but it does cost money to store. So you have to pay up in the hope that it will pay off by going up in price. That usually makes it a pretty lousy investment. That calculus changes, though, when you're being paid to borrow—that is, when you're paying a negative real interest rate. But when does that happen? Well, when inflation is high but interest rates aren't quite as high, like in the 1970s, or when inflation is low but interest rates are lower still, like today. And that, as Paul Krugman and Larry Summers argued, is why gold prices were going up so much even though inflation wasn't.
It almost makes you feel bad for the goldbugs, until you remember that some substantial number of them are just trying to scare seniors out of their money. But the ones who aren't really thought the 1970s showed that gold went up when inflation did, so the fact that gold was going up now meant inflation couldn't be far behind. They didn't understand that the price of gold doesn't depend on how much inflation there is, but rather on how much inflation there is relative to interest rates. So now that rates are rising, gold, as you can see below, is falling. Wait a minute, rates are rising? Well, yes. The Federal Reserve hasn't actually raised rates yet, but it has talked about it enough that markets have reacted as if it already did. That's been enough to make real rates positive again.

That sound you hear is goldbugs insisting that this is just a flesh wound. Sure, gold is down a lot, but that makes this is a buying opportunity! Just wait until China starts snatching up gold as an alternative to the dollar. Then prices will shoot back up. That, at least, was the story they told themselves until earlier this week, when China revealed that it hasn't been purchasing nearly as much gold as people had assumed. Not only that, but a big fund dumped its gold in the middle of the night, driving the price down to a 5-year low. That's left the goldbugs most impervious to empirical reality with nothing to say other than that "gold hasn't lost any value, the dollar has just strengthened." Right, and my stocks aren't worth any less, I'd just get less money for them if I sold them.
But don't feel too bad for the goldbugs. The best thing about predicting the apocalypse is you get to try again and again and again.

OPEC may meet soon as oil even hurting Saudis, Nigeria says

http://www.worldoil.com/news/2016/01/12/opec-may-meet-soon-as-oil-even-hurting-saudis-nigeria-says#.VpY63vP8NI8.twitter


BU DHABI (Bloomberg) -- OPEC will soon make efforts to convene before the next scheduled meeting in June as the slump in oil prices is hurting producers, including the world’s biggest exporter, Saudi Arabia, said Emmanuel Kachikwu, Nigeria’s minister of state for petroleum resources.
The 13 members of the Organization of Petroleum Exporting Countries will work toward meeting in early March, Kachikwu said in an interview in Abu Dhabi on Tuesday. Members are already engaged in informal discussions with some non-OPEC producers, including Russia, to join any future production cut to shore up prices, he said.

Even so, there’s been no formal request for an OPEC meeting, according to three delegates who asked not to be identified. And the U.A.E.’s energy minister said OPEC can’t change its policy because of low prices.

“We are definitely looking at a time frame in very early March,” Kachikwu said. “You will very necessarily have to have an OPEC meeting” because the group first has to meet and decide on its position before having formal meetings with other producers to coordinate a cut, he said.
Benchmark Brent crude closed at $43/bbl on the day of the last OPEC meeting on Dec. 4, and was trading at $30.98/bbl at 9:12 a.m. on Tuesday in London. OPEC, which supplies about 40% of the world’s oil, effectively abandoned output limits in December, potentially worsening a glut created after producers from the U.S. to Russia and Saudi Arabia pumped more than demand warranted.

Big Producers
Led by Saudi Arabia, Gulf Arab producers have poured cold water on previous calls for early meetings by cash-strapped members, such as Venezuela and Algeria, saying that output cuts won’t work without the participation of big non-OPEC producers.

OPEC can’t change its policy because of low prices since the group’s strategy is working and there was a “major reduction in yearly increase from non-OPEC,” Suhail Al Mazrouei, energy minister of the United Arab Emirates, said at a conference in Abu Dhabi on Tuesday.

No OPEC members, including Saudi Arabia, are happy with the slide in prices since the group’s last meeting in December, Kachikwu said earlier at a conference in Abu Dhabi. He didn’t wish to name the member countries seeking an early meeting, and said that in December, Saudi Arabia was supportive of such meeting, if there was consensus for it.

After the lack of consensus at the December meeting, OPEC ministers knew oil prices would fall, Kachikwu said. High-cost shale oil producers are showing resilience to low prices and “are becoming a constant equation in the oil dynamics,” he said.

“I certainly hope that it doesn’t go below $30 for the sake and survival of everybody” Kachikwu said. “My perception is that we will see it get worse before it gets better.” Oil is seen ending the year at $40 to $50, he said.

This is the Saudi news that could move oil

http://finance.yahoo.com/news/saudi-news-could-move-oil-165534013.html#

Croft said Middle Eastern producers were expecting to see prices bounce back by now.

"They did not expect we'd be in this price environment with U.S. production slowing," she said. "The Saudis are taking on austerity measures to try and endure lower for longer."

Saudi Arabia is bracing for the "lower for longer" environment in its 2016 budget, released by the kingdom's Ministry of Finance last week. The country is fighting record deficits and introducing reforms to ride out the low-price environment.
OPEC shows no sign of a slowdown in production overseas. But Croft said dialogue surrounding the issue might be overblown.

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Getty Images. The perception of crude oversupply is stronger than ever, but there's one thing th …

"I don't think there are a million additional barrels out of OPEC," Croft said. "I think the Iranians can maybe do 375,000 to 500,000, but I don't think OPEC is going to produce the type of gains we saw last year."

The question now is, how low will oil go? Goldman Sachs predicted as low as $20 a barrel in September, which Croft said is a possible bottom, but not likely.

"I think we could certainly in a bad macro headline crash through 30 into the 20s," Croft said, referring to Goldman's prediction.

But given that U.S. production is coming down, and demand has not gone over the cliff yet, Croft said, "I don't think so."