Plunging Crude and Shaky Confidence Spur Gold Despite Strong Dollar

Crude oil is off by a spectacular 4.60% in afternoon trading. Failing confidence in global growth, and therefore demand for energy, weighed on West Texas Intermediate and Brent North Sea. Indicative of the general fear of lower demand was the associated plunge in natural gas futures, which were down 7.70%.

There is another factor that beat energy prices down.

Rystad Energy of Oslo estimates recoverable oil in the US from existing fields, current discoveries and still to be discovered areas amounts to 264 billion barrels. The figure surpasses Saudi Arabia's 212 billion and Russia's 256 billion in reserves.

The survey of 60,000 fields worldwide, conducted over a three-year period by Rystad shows total global oil reserves at 2.1 trillion barrels. Current consumption is about 30 billion bbls per year.

The body slam to energy prompted U.S. equities to fall significantly. The Dow is off 0.60%, the S&P about 0.70% and the NASDAQ 0.80%. All the indexes are dramatically off their lows for the day.

Europe was mixed with the FTSE up on expected maneuvers by the Bank of England to counter negative fallout from the Brexit vote on June 23rd.

Most Asian markets were lower except for Shanghai, which is higher a bit more than half a percentage point. Hong Kong suffered most, no doubt because of tis deep connections to the British economy.

Interestingly, the near-in contract for Gold (August) is showing quite a spread over today’s spot price. Some, but not all, can be attributed to the stronger US dollar, which affects spot price directly.

Regardless of which quote you choose, gold is up strongly on general market conditions and leeriness over committing to riskier investments.

The strengthening dollar is directly tied to uncertainty in the EU and the enfeeblement of the British pound, which touched its lowest value point ever. I is trading right at 1.30 to the dollar.

The dollar surged against the pound, which fell to a 31-year low against the greenback, and the yen surged against the dollar.

The rush to the yen and dollar are indications of a strong desire for safe haven plays. Another signal of the endemic risk-off mood today is the continued decline in sovereign bond yields and attendant rise in face prices.

The U.S. 10- and 30-year bonds saw yields that were right at all-time historical lows.

The yield on the Swiss 50-year government bond fell into negative territory for the first time ever.

It is hard to tell right now what the long-term effects of Brexit might be, should it ever come fully to pass. We think some of the wide-eyed, dystopian fears will come to pass, but most will not.

The vote to exit the EU will expose each and every fault line in Great Britain and a few in the EU, just as the candidacy of Donald Trump is exposing the plate tectonics in the United States.

The major fracture we will see in both political entities is the educational fault line. The educated and technically trained will prosper and dominate. Those who do not have high skills levels will continue to thrash about and drown.

No amount of protectionism, Nativism or anti-globalization will change it.

Wishing you as always, good trading,