Dragging Gold Down
It’s been a pretty bloody few weeks in the oil trading pits. From the high at the beginning of October of almost $77 per barrel, the benchmark price of West Texas Crude fell to around $55 this week.
A sell-off of that magnitude in any market is a big deal.
It’s a crash.
It’s important to us because for a few days earlier this month it looked like oil was dragging gold and silver down with it.
That sort of thing can happen when commodity futures traders see one commodity selling off, and dump their position in others “just in case”. Traders in markets with perfectly sound economic fundamental can sometimes liquidate their positions to meet margin calls in collapsing markets.
But as the week unfolded oil showed its first higher closes following twelve days of successive loses dating back to October 29.
Having shown their resilience in the face of the 28 percent bloodshed in oil, gold and silver showed gains as well by midweek.
The petroleum story revolves around both Russia and the Saudi ramping up production in anticipation of additional sanctions choking off more Iranian production. When the sanctions didn’t materialize as expected, the petroleum market was staring at oversupply.
For those interested in a little historical perspective, oil ran up to $145 a barrel in July of 2008 just before the economic meltdown that year. Five months later, as the crisis picked up steam, it broke below $31.
In October 2008, as the extent of the 2008 Great Recession was becoming clear, gold saw a low of $713. Savvy investors started moving in. Those prices have never been seen again.