Bloomberg/John Authers/3-10-2020
“In the meantime, this will put immense pressure on anything that benefits from a high oil price. An immediate effect will be on the U.S., which has profited from the shale oil boom. The economics of that industry now come under threat — which is precisely the purpose of allowing prices to drop so far. Shale operators tend to be heavily leveraged and so now face a great risk of bankruptcy, which will hurt banks, and credit investors.”
USAGOLD note: Bloomberg reports that the Trump administration may be readying a bailout of the oil shale industry following Monday’s 30% drop in the price of oil. On Tuesday oil recovered somewhat, but things still look shaky in the oil patch. Gold gets a mention is this highly recommended opinion piece. “Normally,” says Authers, “when people are scared, they seek sanctuary in dollars … That isn’t happening this time, at least so far. The dollar has fallen to its lowest versus the Japanese yen since 2016, while gold has topped $1,700 per ounce for the first time in 12 years.” Authers, as the title suggests, thinks major adjustments in global monetary order may be in the offing.
“As markets gyrate, gold investors must not lose sight of the bigger picture. For over a year the primary driver of the gold price has been falling real rates. Through the coronavirus crash, ten-year treasury yields have plummeted to all-time lows. With the markets in disarray, gold has not responded to this fall in real rates. Once the volatility subsides, we expect real rates to again become a primary driver of gold prices.”
