In Commodity News 10/04/2015
Can the world live without gold and crude oil? I have often thought about this, but could not find a satisfactory answer.
Gold is a glittering commodity whose charm goes up and down on events and economic barometers some of which are beyond the comprehension of normal human beings. Crude oil is a slippery commodity on which depend the lives of several companies and countries.
As you all know, crude oil the derivative of petroleum, the black liquid found deep below the earth’s surface. Gold is transitioned from the deep rock and alluvial deposits below the surface of the earth. Or to be more precise, both crude oil and gold are mined from the bottom of earth.
A total of 180,000 tons of gold have been so far mined in the world. Several Gulf countries continue to cull millions of gallons of crude oil products every year; still crude oil formations continue to last longer.
How come that investors, traders, countries, economists and common people value gold and crude oil as the most valuable and essential commodities in the world?
There are several answers to this question. But the most interesting answer is that the world cannot live with crude oil and gold.
Gold
I have asked several people why they are charmed and gripped by gold. There are several answers. But the crux of the glitter that gold sprays around is just one thing: investment. Poor, middleclass and rich people buy gold as investment.
If you look at the price charts of gold in the last three decades, the yellow metal can certainly be seen as a solid form of investment. In the early 1980s, gold price was around $ 200 per ounce. In 2013, it shot up to $1900 per ounce. So, on an investment scale, gold scores.
No wonder, then, that leading investors around the globe invest in gold coins, bars, ETFs and gold futures. Jim Rogers, the celebrated commodities investor in the world, has often said that gold is an ideal form of investment and he has put a sizeable amount of his money in gold.
If you look around countries like China and India, buying gold ornaments is a passion for families. I have seen crowded jewelry shops in cities in India and China, and often wondered why the common people are buying so much gold jewelry. I am told that tons of gold are stored in the millions of households across India. Gold ornament is part and parcel of marriages in India.
It is not just ornaments and investments, but the central banks around the world base their currency value against gold. They have stored gold in tune with the currency they hold. Or simply put, their currency’s value is determined by the amount of gold they have stored.
In the last two years, gold prices has been on a downward swing, thanks to a number of reasons ranging from strong dollar to increasing crises in several Euro zone countries. Bear pundits or gold pessimists have often ridiculed the high value of the yellow metal, often saying that people are crazy going after gold. They have predicted that gold prices could crash to $800 per ounce in the next two years.
But I am a gold optimist. Gold prices would go on increasing thanks to a plethora of reasons. They include considerable reduction in the amount of gold mined around the world, the high cost of gold mining and the increasing appetite of the yellow metal as an investment vehicle around the world. So, gold will be on a bull run; and it is capable that gold prices rise to $2500-3500 per ounce level in the next 10 years.
The world, thus, cannot live without gold.
Crude Oil
Crude Oil has several variants on which the world moves. Whether you are driving a car, a plane, trilling a tractor, litting the gas stove or switching on a generator, it is all done with crude oil formations.
There are several other energy variants in place of crude oil. But none has been so far able to replace the mighty crude oil just because the world is heavily and directly dependent on crude oil for its upward movements.
Crude oil is at the center of international diplomatic relations. The United States has had deep interests in Saudi Arabia for decades now simply because America wants crude oil from the world’s largest crude oil producer—Saudi Arabia. Moreover, the state of the art technology that helps in drilling petroleum products from the bottom of the earth is supplied by American companies. Several oil producing countries in the Middle East region survive on the technology supplied by America and other western nations for drilling oil.
The price of crude oil has been at the centre of heated debates in the world in the last one year. Crude oil prices have been falling, driving large oil producing countries to cut down production. It has been a deep fall for crude oil from above $100 to below $50 in the last two years.
Crude oil bears have predicted further falls in the prices, saying that oil prices would crash further, as the liquid commodity is over-supplied in the world and other energy variations like shale gas is being drilled in countries like the United States.
But despite all the talk about shale gas and other energy variants, I would say the charm for crude oil as the primary energy mover of the world would not subside. Crude oil will continue to rule the world.
The world, thus, cannot live without crude oil.
