It seems that oil is taking over the role of gold as an inflation hedge and storehouse of wealth. Oil is trading at $64.50 this morning despite recent data that says crude inventories surged last week. According to The Wall Street Journal, “oil inventories increased by 3 million barrels last week, contrary to analysts' expectations of a 1.7 million barrels draw. Gasoline stocks also rose more than analysts’ estimates.”
Over the past five trading sessions the price of oil has rallied along with the rest of the market on an expected increase in demand and a falling dollar. But an extra 1.2 million barrels in the weekly numbers is a lot. You would expect it to sell off.
With such a large hangover in oil supplies and low demand, why isn’t oil at $30 like many predicted? It would seem that the price of crude is like Wile E. Coyote – it has run off a cliff, stopping in mid-air, legs churning, waiting to look down.
It could because oil is priced in dollars and investors are seeking an inflation hedge.
The dollar falls…
A bigger question is why has gold not broken through $1,000 per ounce when the greenback is heading for $1.60 per euro.
According to Reuters, “Spot gold was at $947.00 an ounce at 1214 GMT, from $948.15 an ounce late in New York on Tuesday. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange were flat at $946.90 an ounce.”
Oddly, that’s exactly where gold was trading this time last year. That said, gold has been in an ascending triangle and keeps attacking the $1,000 make. It will break it on the first CPI report that shows real inflation.
Regardless, if the dollar keeps falling both gold and oil should go up regardless of inventory numbers.
Christian DeHaemer
Crisis Trader
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