Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Proprietary System Shows Stock Market Rally Could Extend Higher - 23rd Jul 18
The Global Cannabis Market Is Set To Explode - 23rd Jul 18
The Death of the US Real Estate Dream - 22nd Jul 18
China is Now Officially at War With the US and Japan - 22nd Jul 18
You Buy the Fear in Gold - 22nd Jul 18
Trumponomics Stock Market 2018 - The Manchurian President (1/2) - 21st Jul 18
The Death of Japan's Real Estate Dream - 21st Jul 18
SMIGGLE Amazing Mega Shopping Haul, Pencil Cases, Smigglets and Giant Back Packs! - 21st Jul 18
Cayton Bay Beach Caravan Park Holiday - What's it Like? - 21st Jul 18
Gold Stocks Investment Wanes - 20th Jul 18
Diversifying Your Stock Investing Strategies is Smart Investing - 20th Jul 18
Custom Global Stock Market Indexes May Be Sounding Alarms - 20th Jul 18
S&P 500 Just 2% Below Record High, But There's More Stock Market Uncertainty - 19th Jul 18
Stock Market Technical Picture - 19th Jul 18
Gold Market Signal vs. Noise - 19th Jul 18
Don’t Get Too Bullish on Gold - 19th Jul 18
Bitcoin Price Rallies to Upper Channel – What Next? - 19th Jul 18
Trump Manchurian President Embarrasses Putin By Farcically Blowing his Russian Agent Cover - 19th Jul 18
The Fonzie–Ponzi Theory of Government Debt: An Update - 19th Jul 18
Will the Fed’s Interest Rate Tightening Trigger Another Financial Crisis? - 18th Jul 18
Stock Market Investor “Buy the Dip” Mentality is Still Strong, Which is Bullish for Stocks - 18th Jul 18
Stock Market Longer-Term Charts Show Incredible Potential - 18th Jul 18
A Better Yield Curve for Predicting the Stock Market is Bullish - 18th Jul 18
U.S. Stock Market Cycles Update - 18th Jul 18
Cayton Bay Hoseasons Caravan Park Holiday Summer 2018 Review - 18th Jul 18
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Why Crude Oil Is the New "Gold Standard"

Commodities / Crude Oil May 22, 2013 - 12:21 PM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: Something very interesting just happened at the 2013 MoneyShow in Las Vegas.

The purveyors of doom and gloom were all still hawking their services there. But the primary solution they offer - a cure-all elixir for everything that ails markets - was beginning to wear thin.


The usual conviction that this one asset is the remedy was gone. And the seats at these sessions were only half-filled.

Indeed, gold is beginning to lose its luster.

The erstwhile commodity fix has been under pressure of late as well. Yet, even while most eyes have been on declining commodities - especially gold, silver, and platinum - something else has been happening.

Crude oil is emerging as a new replacement to reflect stored market value.

That is good for folks like us who invest in the energy sector, because it will provide a floor to downward pressures in oil prices. It will not counter all forces reducing the price of oil, but it is likely to temper such movements, allowing us some leverage.

Take a look...

The Yellow Metal's Fall from Grace

Before 2013, the reliance upon metals as a value play during volatile trading periods has become almost a mantra. Such commodities are usually regarded as barometers for broader market moves, although the precipitous fall in pricing over the past month has called that position into question.

That fall has been considerable.

SPDR Gold Shares (NYSEArca: GLD), the most widely held gold exchange traded fund (ETF), has fallen 15.3% since April 1. Meanwhile, the equivalent for silver - the iShares Silver Trust (NYSEArca: SLV) - is down 21%. ETFS Physical Platinum Shares (NYSEArca: PPLT), the most popular platinum ETF, is the best performing of the three, but it's still down 8.8% since April 1.

Normally, gold is regarded as the primary refuge when markets move south, with silver regarded as a distant second. Both silver and platinum are also regarded as indicators of market improvement (along with copper, a commodity I have long regarded as an "acquired taste" largely dependent these days upon Chinese industrial performance).

What has been happening recently, however, is different. GLD and SLV have declined far more than the overall market has risen. In other words, a cursory view would immediately show that what is happening is way more than the commonly perceived negative side of the "flight to security."

That is, if gold (and to a lesser extent silver) are seen only as a refuge when things so sour, the reverse move of the market up should cause interest in the metal to decline.

The current slide, however, is well beyond the rise in market prices. As of Monday, the S&P had risen 6.7% since April 1, less than half the fall in GLD and only a third of SLV.

With the much announced sales of gold holdings by investors like George Soros and Warren Buffett, the largest slide in some three decades has put the metal's position as a further market barometer in doubt.

At the same time, the price of crude oil has become a more accurate reflection of where markets are moving.

Why Oil's the Better Market Indicator Today

As of Monday, West Texas Intermediate (WTI), the NYMEX benchmark futures contract crude rate, has declined less than 1% since April 1, but has risen 7.7% over the past month, better than the 5.6% improvement in the S&P.

Yet this is not translating into a similar result for Brent, the London-based benchmark comprising the other primary crude oil standards worldwide. There, the price has declined 6.6% since April 1, although rising 3.5% for the most recent month.

Now the focus between these two has fallen upon the "spread" or the difference in price. In every trading session since mid-August 2010, Brent has been priced higher than WTI. Both of the benchmarks have lower sulfur content than some 85% of the oil traded globally on a daily basis while WTI is a slightly better grade than Brent.

Nonetheless, Brent has been trading at a premium to WTI.

One reason has been the glut of volume at Cushing, Okla. (the primary pipeline location in the U.S. and the place where NYMEX sets its WTI daily price). Another is the usage of Brent as a yardstick for more actual oil sales internationally than WTI.

The surplus at Cushing is now being reduced due to a reverse flow on an existing pipeline to Gulf Coast area refineries and the prospects moving forward from new transport networks. Meanwhile, Brent is experiencing added competition from new sour (i.e., higher sulfur content) crude benchmarks rates in determining trading prices.

When combined with additional American domestic oil coming on line, the spread is narrowing. As of Monday, it stands at 8.1% of the WTI price (the better way of measuring the actual spread's impact on the U.S. market). It was discounted almost 23% less than three months ago.

This contraction of the spread will have some interesting benefits for energy traders moving forward and we will discuss these in an upcoming article. But it is also related to the matter we are considering today.

As that spread narrows, WTI becomes a more ready reflection of actual global oil prices. And as the premium returns to New York traded oil, we will also acquire a more ready indicator of crude's rising position as a store of market value.

There are a range of interesting outcomes for the energy investor from this development. While the average investor is not about to begin trading in oil futures, there are several ETFs that would accomplish the same objective.

Using select ETFs to target individual company shares will also result in increased trading leverage.

I will have much more to say about this once the revised oil position settles.

Source :http://moneymorning.com/2013/05/22/why-oil-is-the-new-gold-standard/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules