Late yesterday, the US and Iran reached a framework agreement on a nuclear deal. There’s still some negotiating to be done, but this is a big step. If all goes according to plan, the two sides will sign a comprehensive agreement by June 30, and the West will lift all sanctions on Iran’s banking and oil industries. Some analysts predict that the impending flood of Iranian oil could drive prices down to $20 a barrel.
On a more bullish note, global demand for oil could surprise to the upside this year. And there’s also the serious risk that Saudi Arabia’s oil exporting infrastructure could be damaged if its intervention in Yemen backfires.
Back in the US, Chief Energy Investment Strategist Marin Katusa says that the plummeting rig count should eventually lead to lower US oil production. Indeed, this week marked the first weekly fall in US output in two months.
This all adds up to a fuzzy outlook for oil. But Technical Analyst Dominick Graziano has a clearer view. His charts suggest that oil appears to have bottomed.
A word of warning, though: oil stocks are still expensive relative to the price of crude. And there’s this: fund managers who held on to oil stocks are only just starting to capitulate.
Gold’s Resilience in the Face of a Rising Dollar Bodes Well
You wouldn’t know it from reading the headlines, but over the last few months, gold is up in euros and almost every other currency besides the US dollar.
The fact that gold hasn’t collapsed during the dollar’s surge is important, says Chief Metals & Mining Investment Strategist Louis James. Miners that pay costs in euros, pesos, Canadian dollars, or any other declining currency now find it much cheaper to run their mines in relation to the gold price. Gold’s resilience also suggests that it could really take off when the dollar does weaken.
At $1,200/oz, gold is quite reasonable considering all the black swans flying overhead. As we often stress, owning physical gold for wealth preservation is a must in our fiat-currency world.
A Resource Sector Bottom?
In his latest interview, Doug Casey says that the resource sector could be close to a turning point. One telltale sign is that junior mining stocks are shriveling up. As Doug puts it:
Most of these crappy little mining stocks have no money, no management, no assets. In bull markets, they’re still crappy companies, but they can raise money, drill some holes in the ground, and hope to get lucky. But now they’re turning into shells, and that’s another sign of a resource sector bottom.
Doug believes that last November’s low of $1,140/oz was the bottom for gold.
Randgold’s Growth Plans Hint at M&A on the Way
Randgold, a major South African gold miner, is looking for “transformative” acquisitions. Majors don’t usually go shopping until things are looking up, so this could be a sign that M&A in the mining sector will soon accelerate.
Louis James touched on this topic recently. We’re at that time in the cycle when major mining companies must begin acquiring smaller players to make up for deep cuts in exploration budgets. Otherwise they’ll end up mining themselves out of business.
Whether Randgold or some other major kicks off the trend, we’re confident that takeovers are coming.
Blips and Bogeys
- More financial repression: Australia will start taxing bank deposits.
- The US economy stalls: the Atlanta Fed forecasts zero growth as payrolls and factory data disappoint. Meanwhile, Texas’ economy is breaking hard.
- The EU is laying groundwork for antitrust charges against Google. It also wants to hobble Amazon, Facebook and Apple.
- Russia gives Ukraine a discount on its gas. Is this a sign that the conflict is winding down?
- For some weekend listening: Steve Keen and Chris Martenson talk about the failed economic models at the heart of modern central banking.