Middle East Tensions and Slowing US Production Impact Crude Oil
Lately, Middle East tensions and slowing US production are driving oil prices higher. Oil prices gained 21% in April 2015.
The EIA reported that weekly crude oil production declined to 9.366 MMbpd from 9.384 MMbpd for the week ending April 17, 2015.
WTI crude oil futures for June delivery increased by 2.81% on Thursday, April 23. Oil prices surged on the consensus of supply disruption from the Middle East.
The festival season in India could boost the demand for gold in the short term. Bullish speculators could see resistance at $1,225 per ounce.
China and India’s gold buying activity increased the most in March 2015, according to data from the Swiss Federal Customs Administration.
The US Dollar Index gained against the basket of currencies on April 23, 2015. The index gained on the consensus of the improving US economy.
On April 20, US On-Highway Diesel Fuel Prices were $2.78 per gallon. This represented an increase of ~1% from $2.754 per gallon last Monday, April 13.
US regular gasoline prices on Monday, April 20, were $2.485 per gallon. This was an increase of 3.2% from $2.408 per gallon last Monday, April 13.
In its STEO April edition, the EIA reported that production growth estimates from non-OPEC countries will decline in 2015—compared to 2014.
NYMEX-traded WTI crude oil for May futures increased by 1.15% on Monday. Prices closed at $56.38 per barrel on April 20, 2015.
An interest rate hike would be negative for an asset not yielding any income, leading investors to better interest-yielding asset classes such as equities and bonds.
When money supply growth is used to prop up a financial and economic system instead of fueling strong economic growth, the price of gold is likely to climb.
When spending exceeds earnings, the government borrows money from its citizens and from foreign entities. If this debt accumulates, its currency’s value could decrease.
As US public debt rises beyond a certain point, the federal government must increase taxes and cut spending in productive areas in order to service the interest costs.
A trade deficit means foreign goods are in demand, increasing the demand for foreign currency. This increases long-term outflows of the dollar, leading to its devaluation.
Improving economic prospects for the US should lead to a stronger US dollar, making other investments more attractive, including equities and high-yield bonds.
Wage growth is one of the missing components and could support inflation, which has been anemic and one of the reasons the Fed is deferring its rate hike.
The weak jobs report sent the US dollar lower, which has a positive impact on the gold markets, but means lower consumer spending.
Gold mainly trades in US dollars. As a result, a weaker dollar makes gold cheaper for other nations to purchase, and it increases the demand for gold.
Gold is used as an investment alternative because investors perceive it as a way to protect money’s purchasing power.
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