Oil Crisis? Should We Now Buy Gold?

Ladies and Gentlemen

With a 17% fall in Oil since the start of 2016, the possibility of $20 oil becomes a real target for Investors, as we see major Hedge Funds exit the commodity.

Gold since August has been swung around in a tug of war, with Chinese equities on one side and a strong USD on the other. This pendulum has been relentless in the recent months, however with new lows in Oil prices, Gold continues to hold well in retaining it’s safe haven status.

Gold has climbed 3.4% already in 2016 and investors risk aversion does not seem to be letting up. Geopolitical tensions persist in the Middle East and North Korea, as well as concerns about China’s growth forecasts.  However, with a persistent strength in the USD forecasted for 2016, some analysts still call for sub $1,000 (per oz) Gold… as a “Competition for Gold” increases.

With Oil prices reeling from oversupply and Gold getting a small boost, Brent crude is now at the cheapest relative price in almost a generation.

But what is a “Safe-Haven”?   By Economic definition (as pointed out by James Steel, of HSBC) The Safe-haven inspired demand for Gold (and other precious metals) rests on the interconnection between  the state of the Gold Market and the Financial Markets of countries with long-term structural arguments for Gold accumulation (i.e. China and India) – and with this being said, HSBC forecast average Gold prices of $1,205 this year.

Mr Steel is looking more with a long-term view, as accumulations continue to rise. We always tend to think about Gold being a hedge on safety, however recently Gold has been more about uncertainty and a reflection of anxiety. Gold in a deflationary environment, may actually be likely to continue it’s slide down.  2016 could well be the story of Central Bank delivery, especially as we are now risk-off as we strength in the Yen for example… but we hear nothing about the BOJ pushing back.

So Is Gold still a mark of uncertainty? Well the recent shocks coming from China did Send Gold immediately higher, which is reassuring to see.

I personally am long Gold, as I think it’s safe-haven status will be the trend for 2016 but in the short-term we may remain bearish. I wish you all the best of luck with your Metals trading and as we all stay tuned to this theater of events in the World markets, I wish you safer trading.

Anish8Fx @ Atom8.com