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Oil, gold and interest rates


12 March 2021

Earlier, we have repeatedly noted the high contribution of OPEC+ to the recovery of the oil market, which led to a fairly strong increase in oil prices. At the same time, traders almost completely ignored the increase in oil reserves in the United States by more than 35 million barrels over the past two weeks. Let me remind you that a strong increase in oil reserves should help reduce the price of black gold, and in this case, even its collapse. But as you can see, this did not happen.

The US Energy Information Administration explains this phenomenon by saying that in the next few months, the oil deficit may reach 3 million barrels per day, even if OPEC+ oil production increases. This forecast takes into account the growth of consumption to 98.2 million barrels per day, which is 4 million barrels less than the relatively "normal" level. Therefore, the trend in the black gold market may remain bullish for at least another 4-5 months.

Let's move on to the gold market. According to the manager of one of the largest investment funds BlackRock, gold has ceased to perform a hedging function for the stock market. Simply put, now traders do not insure their risks by buying gold, which significantly increases the probability of a collapse of this market in the long term. Moreover, we are hearing about the upcoming global economic recovery, and this is another bearish fundamental factor for the precious metals market. Therefore, the downtrend can only intensify.

We discussed the commodity markets, now let's move on to the main instrument of monetary policy of all central banks of the world - the interest rate. I propose to consider the current situation using the example of the US Federal Reserve System. Thus, the American regulator has already issued sovereign debt in the amount of $16.3 trillion in 2020, besides, in 2021, about $12.6 trillion will be issued. Against the background of the repeatedly discussed growth prospects of the US economy, the likelihood of rising inflation is rapidly increasing.

In this case, the Fed will be forced to raise rates, thereby significantly increasing the cost of debt that needs to be serviced. Here we have a vicious circle: on the one hand, there is a prospect of growth of the American economy, of course, this is very good, but on the other hand - a significant increase in the debt burden can provoke a series of bankruptcies. All this is very reminiscent of 2008 and the clearly overheated real estate market in the United States. But now almost all markets are in a similar position.

At the end of the review, I should pay attention to the upcoming publication of the report on the change in the GDP growth rate in Britain for January of this year. Economists expect another deterioration in this indicator and even the appearance of negative values for the first time since July 2020. Also, the volume of industrial production in January may be significantly lower than in December, which is negative for the pound.

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