Showing posts with label Barclays. Show all posts
Showing posts with label Barclays. Show all posts

Friday, March 18, 2016

Gold and Oil Are Soaring…Justin says There is Only One You Should Buy

By Justin Spittler

Gold had a HUGE day yesterday. The price of gold jumped 2.5% to $1,263/oz. Gold is this year’s top performing asset. With a 19% gain since January, it’s off to its best start to a year since 1974, according to Bloomberg Business.

Casey Research founder Doug Casey thinks this is just the beginning.....
In case you missed it yesterday, Doug explained why gold is set to rise at least 200%...and possibly even 400% or 500%. It’s a “must-read” essay, especially if you’re worried about the fragile stock market, slowing economy, or reckless governments.

In short, Doug believes the government has set us up for a crisis that “will in many ways dwarf the Great Depression.” And Doug expects the coming economic disaster to ignite a historic gold bull market.
When people wake up and realize that most banks and governments are bankrupt, they’ll flock to gold…just as they’ve done for centuries. Gold will rise multiples of its current value. I expect a 200% rise from current levels, at the minimum. There are many reasons, which we don’t have room to cover here, why gold could see a 400% or 500% gain.

Gold stocks will soar even higher.....
Longtime readers know gold stocks offer leverage to the price of gold. A 200% jump in the price of gold could cause gold stocks to spike 400%...600%...or more. The Market Vectors Gold Miners ETF (GDX), which tracks large gold miners, has soared 52% this year. Yesterday, it closed at its highest level since February 2015.

But gold stocks are still extremely cheap..…
Doug is loading up on gold stocks right now.
Right now gold stocks are near a historic low. I’m buying them aggressively. At this point, it’s possible that the shares of a quality exploration company or a quality development company (i.e., one that has found a deposit and is advancing it toward production) could still go down 10, 20, 30, or even 50 percent. But there’s an excellent chance that the same stock will go up by 10, 50, or even 100 times.

If you’re interested in multiplying your money by 5x or 10x in the coming gold “mania,” now is the time to take a position in gold stocks. The window of opportunity won’t stay open long. As Doug said, gold stocks will skyrocket once people realize the financial system is doomed. Because this window of opportunity is small, we’re currently running a special $500 discount on our service that recommends gold stocks, International Speculator. Click here to learn more.

Crude Oil is also soaring.....
As Dispatch readers know, there’s been nothing but bad news in the oil sector for nearly two years. The price of oil crashed 75%. Two months ago, it hit its lowest price since 2003. But since then, oil has climbed 36%. It jumped 5.1% yesterday. Why the big reversal? We’ll get to that in a second. First, let’s recap the recent disaster in the oil industry.

The world has too much oil.....
From 1998 to 2008, the price of oil surged more than 1,200%. Last year, U.S. oil production surged to the highest level since the 1970s. Global output also reached record highs. High prices encouraged innovation. Oil companies developed new methods, like “fracking.” This unlocked billions of barrels of oil that were once impossible to extract from shale regions. Today, the global economy produces more oil than it consumes. Each day, oil companies produce about 1.9 million more barrels than the world needs.

Crude Oil companies have slashed spending to cope with low prices.....
They’ve sold assets, abandoned billion dollar projects, cut their dividends and laid off more than 250,000 workers since June 2014. According to investment bank Barclays, oil and gas producers cut spending by 23% last year. Barclays expects spending to fall another 15% in 2016. This would be the first time in two decades the industry has cut spending two years in a row. Last week, the number of U.S. rigs actively pumping oil and natural gas plummeted to its lowest level in 70 years.

With oil prices rising, many U.S. companies can’t bring rigs back online fast enough.....
They don’t have enough workers or equipment after all the spending cuts. The Wall Street Journal reports:
Some of the largest U.S. oilfield services firms have laid off 110,000 people in the past year, Evercore ISI analysts estimate, and many of those workers have no plans to return to the industry.
Close to 60% of the fracking equipment in the U.S. has been idled during the downturn, according to IHS Energy, which estimates it would take two months for some of that equipment to return.

The Wall Street Journal continues:
Still, even if prices return to levels where shale drillers can make money again, many companies are vowing to be cautious. Some are tempered by what occurred last spring, when producers jumped back into drilling new wells after oil prices briefly hit $60 a barrel, inadvertently worsening a supply glut that ultimately made prices worse.

This is a dramatic shift in thinking by the industry.....
Oil companies had been pumping near-record amounts of oil for almost two years, despite low prices. Many companies had no choice. When all your revenue comes from selling oil, you have to keep pumping and selling oil. Companies could either sell oil for cheap or go out of business.

With fewer rigs pumping oil today, oil prices are climbing..…
Still, the oil crisis is far from over. Even with the recent rally, the price of oil is 65% below its 2014 high. It’s trading around $38 a barrel. Many companies won’t earn a profit unless oil gets back to $50. According to The Wall Street Journal, one-third of U.S. oil producers could go bankrupt this year. A wave of bankruptcies would likely trigger another leg down in oil stocks.

The oil market is highly cyclical.....
It goes through big booms and busts. Today, the industry is going through its worst bust in decades. It will boom again...but not until the world works off its massive oversupply of oil. According to the International Energy Agency, the oil surplus could last into 2017.

Last month, Saudi Arabia, Russia, Qatar, and Venezuela agreed to cap oil output.....
Saudi Arabia and Russia are two of the world’s three largest oil-producing countries. Qatar and Venezuela are also major oil producers. These countries agreed to “freeze” their oil production at January levels. They quickly broke the agreement. On Monday, CNN Money reported that Saudi Arabia and Russia actually boosted output last month. Both countries are pumping record amounts of oil. They don’t have much choice. Oil makes up 80% of Saudi Arabia’s exports. It accounts for 52% of Russia’s exports.

Nick Giambruno, editor of Crisis Investing, doesn’t think Saudi Arabia will survive the crisis.....

But he says the U.S. shale industry will survive.
By keeping the market saturated with oil, the Saudis are driving down the price. They hope to drive it down low enough and long enough to bankrupt the shale industry…since shale oil costs more than Saudi oil to produce. The U.S. shale industry is a major source of competition.

In the 1990s, the U.S. imported close to 25% of its oil from Saudi Arabia. Today—because of high U.S. shale oil production—the U.S. imports only 5%. The Saudis are having some success. In the past year, at least 67 U.S. oil companies have filed for bankruptcy. Analysts estimate as many as 150 could follow. The shale oil industry is in ‘survival mode.’

The Saudis have damaged the U.S. shale oil industry. And they’ll continue to cause more damage. But they won’t bankrupt every producer. The shale industry has more staying power than Saudi Arabia. Some producers now say they’re profitable with $40 oil. And their pace of innovation will drive that even lower. The industry will survive.
The Saudis are playing a dangerous game.
If the Saudis don’t stop flooding the market—and there are no signs they will—they won’t be shooting themselves in the foot…but in the head. Saudi Arabia will either collapse or surrender—and stop flooding the market. Either way, oil will eventually go a lot higher.
Shale oil stocks are a train wreck right now. Occidental Petroleum Corporation (OXY), the largest shale oil producer, is down 30% since June 2014. EOG Resources Inc. (EOG), the second-largest shale oil producer, is down 35%.

Nick sees huge opportunity here. He often reminds readers that a crisis is the only time you can buy a dollar’s worth of assets for a dime or less. And shale oil stocks are in a major crisis right now. Nick has already picked out a “best of breed” U.S. shale oil company. But before pulling the trigger, Nick is waiting for the Saudi government to show signs of cracking. The point of maximum pessimism will present a “once-in-a-generation opportunity” to pick up this shale company at an absurdly cheap price.

You can get in on this opportunity by signing up for Crisis Investing. Click here to begin your 90-day risk-free trial.

Chart of the Day

Oil is still near its lowest level in years. As we mentioned earlier, oil has rallied 36% over the past few weeks. That’s a big jump in a short period. But oil isn’t in the clear yet.  Today’s chart shows the performance of oil since 2014. You can see that the price of oil is still well below its 2014 high. It’s trading at prices last seen during the last financial crisis. Many oil companies can’t survive with current oil prices. Some will go out of business. And a wave of bankruptcies will likely spark another leg down in oil stocks. We recommend avoiding oil stocks for now.



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Thursday, November 13, 2014

Paper Gold and Its Effect on the Gold Price

By Bud Conrad, Chief Economist

Gold dropped to new lows of $1,130 per ounce last week. This is surprising because it doesn’t square with the fundamentals. China and India continue to exert strong demand on gold, and interest in bullion coins remains high.

I explained in my October article in The Casey Report that the Comex futures market structure allows a few big banks to supply gold to keep its price contained. I call the gold futures market the “paper gold” market because very little gold actually changes hands. $360 billion of paper gold is traded per month, but only $279 million of physical gold is delivered. That’s a 1,000-to-1 ratio:

Market Statistics for the 100-oz Gold Futures Contract on Comex
Value ($M)
Monthly volume (Paper Trade) $360,000
Open Interest All Contracts $45,600
Warehouse-Registered Gold (oz) $1,140
Physical Delivery per Month $279
House Account Net Delivery, monthly $41


We know that huge orders for paper gold can move the price by $20 in a second. These orders often exceed the CME stated limit of 6,000 contracts. Here’s a close view from October 31, when the sale of 2,365 contracts caused the gold price to plummet and forced the exchange to close for 20 seconds:



Many argue that the net long term effect of such orders is neutral, because every position taken must be removed before expiration. But that’s actually not true. The big players can hold hundreds of contracts into expiration and deliver the gold instead of unwinding the trade. Net, big banks can drive down the price by delivering relatively small amounts of gold.

A few large banks dominate the delivery process. I grouped the seven biggest players below to show that all the other sources are very small. Those seven banks have the opportunity to manage the gold price:


After gold’s big drop in October, I analyzed the October delivery numbers. The concentration was even more severe than I expected:


This chart shows that an amazing 98.5% of the gold delivered to the Comex in October came from just three banks: Barclays; Bank of Nova Scotia; and HSBC. They delivered this gold from their in house trading accounts.

The concentration was even worse on the other side of the trade—the side taking delivery. Barclays took 98% of all deliveries for customers. It could be all one customer, but it’s more likely that several customers used Barclays to clear their trades. Either way, notice that Barclays delivered 455 of those contracts from its house account to its own customers.

The opportunity for distorting the price of gold in an environment with so few players is obvious. Barclays knows 98% of the buyers and is supplying 35% of the gold. That’s highly concentrated, to say the least. And the amounts of gold we’re talking about are small—a bank could tip the supply by 10% by adding just 100 contracts. That amounts to only 10,000 ounces, which is worth a little over $11 million—a rounding error to any of these banks. These numbers are trivial.

Note that the big banks were delivering gold from their house accounts, meaning they were selling their own gold outright. In other words, they were not acting neutrally. These banks accounted for all but 19 of the contracts sold. That’s a position of complete dominance. Actually, it’s beyond dominance. These banks are the market.

My point is that this market is much too easily rigged , and that the warnings about manipulation are valid. At some point, too many customers will demand physical delivery and there will be a big crash. Long contracts will be liquidated with cash payouts because there won’t be enough gold to deliver. I saw a few squeezes in my 20 years trading futures, including gold. In my opinion, the futures market is not safe.

The tougher question is: for how long will big banks’ dominance continue to pressure gold down?

Unfortunately, I don’t know the answer. Vigilant regulators would help, but “futures market regulators” is almost an oxymoron. The actions of the CFTC and the Comex, not to mention how MF Global was handled, suggest that there has been little pressure on regulators to fix this obvious problem.

This quote from a recent Financial Times article does give some reason for optimism, however:

UBS is expected to strike a settlement over alleged trader misbehaviour at its precious metals desks with at least one authority as part of a group deal over forex with multiple regulators this week, two people close to the situation said. … The head of UBS’s gold desk in Zurich, André Flotron, has been on leave since January for reasons unspecified by the lender…..

The FCA fined Barclays £26m in May after an options trader was found to have manipulated the London gold fix.

Germany’s financial regulator BaFin has launched a formal investigation into the gold market and is probing Deutsche Bank, one of the former members of a tarnished gold fix panel that will soon be replaced by an electronic fixing.

The latter two banks are involved with the Comex.

Eventually, the physical gold market could overwhelm the smaller but more closely watched U.S. futures delivery market. Traders are already moving to other markets like Shanghai, which could accelerate that process. You might recall that I wrote about JP Morgan (JPM) exiting the commodities business, which I thought might help bring some normalcy back to the gold futures markets. Unfortunately, other banks moved right in to pick up JPM’s slack.

Banks can’t suppress gold forever. They need physical gold bullion to continue the scheme, and there’s just not as much gold around as there used to be. Some big sources, like the Fed’s stash and the London Bullion Market, are not available. The GLD inventory is declining.



If a big player like a central bank started to use the Comex to expand its gold holdings, it could overwhelm the Comex’s relatively small inventories. Warehouse stocks registered for delivery on the Comex exchange have declined to only 870,000 ounces (8,700 contracts). Almost that much can be demanded in one month: 6,281 contracts were delivered in August.

The big banks aren’t stupid. They will see these problems coming and can probably induce some holders to add to the supplies, so I’m not predicting a crisis from too many speculators taking delivery. But a short squeeze could definitely lead to huge price spikes. It could even lead to a collapse in the confidence in the futures system, which would drive gold much higher.

Signs of high physical demand from China, India, and small investors buying coins from the mint indicate that gold prices should be rising. The GOFO rate (London Gold Forward Offered rate) went negative, indicating tightness in the gold market. Concerns about China’s central bank wanting to de-dollarize its holdings should be adding to the interest in gold.

In other words, it doesn’t add up. I fully expect currency debasement to drive gold higher, and I continue to own gold. I’m very confident that the fundamentals will drive gold much higher in the long term. But for now, I don’t know when big banks will lose their ability to manage the futures market.

Oddities in the gold market have been alleged by many for quite some time, but few know where to start looking, and even fewer have the patience to dig out the meaningful bits from the mountain of market data available. Casey Research Chief Economist Bud Conrad is one of those few—and he turns his keen eye to every sector in order to find the smart way to play it.

This is the kind of analysis that’s especially important in this period of uncertainty and volatility… and you can put Bud’s expertise—along with the other skilled analysts’ talents—to work for you by taking a risk-free test-drive of The Casey Report right now.

The article Paper Gold and Its Effect on the Gold Price was originally published at casey research


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Tuesday, October 6, 2009

Barclays Technical Analysis: Oil’s Trend Line Key to $75


Crude oil futures may surpass this year’s $75 a barrel high if prices for the most active contract close above their 100 day moving average and a six month trend line, according to technical analysis by Barclays Capital.

November crude oil on the New York Mercantile Exchange has settled above its 100 day rolling mean each day for the past week. While this signals potential for gains, for prices to rally the contract must also close over a line connecting the lowest points between February and July, Barclays said.

“A close above these indicators would point to a push towards the high end of the range that’s held since the middle of June,” Barclays analyst MacNeil Curry said in a telephone interview from New York“.....Read the entire article.

Monday, September 21, 2009

Bloomberg Technical Analysis: N.Y. Natural Gas Set to Decline Below $3

Natural gas futures, which jumped 28 percent last week, may revisit seven year lows after surging into an “overbought” area of resistance between $3.58 and $3.87 per million British thermal units, according to a technical analysis by Barclays Capital. Gas tumbled 82 percent from a high of $13.694 per million Btu in July 2008 to touch $2.409 on Sept. 4. Gas then surged 57 percent through Sept. 18. The futures have entered a resistance zone and the downtrend is likely to resume, MacNeil Curry, a New York based analyst at Barclays, said in an interview. “We’re around the high end of this resistance zone and things are overbought,” Curry said. “This is still an environment where bounces should be sold.....Read the entire article

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Thursday, July 23, 2009

Technical Analysis From Barclays: Oil Set to Fall on Spreads

Brent crude oil is likely to fall below $63 a barrel “in the next few weeks” as the spread between long term contracts widens, according to technical analysts at Barclays Capital. The discount for buying Brent contracts for delivery in December 2009 compared with December 2010 increased today to the most in more than two months. The spread, expressed as a negative number when the market is in contago, is now beneath a trend line connecting the low points during 2009. That may trigger further selling of Brent futures, analysts at the investment bank of Barclays Plc said yesterday in a report.....Complete Story

Tuesday, May 5, 2009

Majors Drilling In Brazil Despite Low Prices, Barclays Calls For $71 Oil, Crude Oil Lower On Inventory Fears


"Crude Oil Falls On Speculation U.S. Supplies Climbed Last Week"
Crude oil fell from a five month high on speculation a government report will show that U.S. supplies climbed to the highest level in 18 years. An Energy Department report tomorrow will probably show that crude oil inventories increased 2.5 million barrels last week, according to a Bloomberg News survey. Prices surged yesterday as the Standard & Poor’s 500 Index erased its 2009 loss and pending sales of existing U.S. homes jumped. “The market keeps rising on a rather shaky foundation,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. "You are still sitting on a lot of inventory".....Complete Story

"Foreign Oil Majors Drilling in Brazil Despite Oil Prices"
Foreign oil companies continue prospecting for crude at Brazilian concessions, including the key BMS22 block in the Santos Basin, despite a steep decline in oil prices and daunting costs. A series of high profile oil discoveries in the past few years has made Brazil one of the world's most exciting oil frontiers. Last week, state run energy giant Petroleo Brasileiro SA (PBR), or Petrobras, pumped the first crude from a Santos Basin sub salt well at the Tupi field. BMS22 is part of a cluster of promising Santos Basin blocks that have yielded several oil discoveries, including the nearby BMS11 block's Tupi the Western Hemisphere's largest oil discovery in 30 years.....Complete Story

"Oil May Break Resistance, Rise to $71.55: Technical Analysis"
Crude oil may be headed for $71.55 a barrel after breaking through $56.10 a barrel, according to Barclays Capital. Should the June crude oil contract push through the high of $56.10 a barrel reached on March 26, futures may climb past the Jan. 6 intraday high of $59.66 to $62 a barrel, Barclays Capital analysts, led by Jordan Kotick, said in a May 4 report. Oil could jump to $71.55 a barrel as traders attempt to exit the large number of short positions, or bets that prices will fall, creating a so called short squeeze, the analysts said. This is equal to the upward moves oil has made from a so called.....Complete Story
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