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Commodities’ King Sees “Structural Supply-Side Commodity Inflation” Sending Oil To $200

Commodities’ King Sees "Structural Supply-Side Commodity Inflation" Sending Oil To $200

As Omicron anxiety fades (and even morphs into talk…

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This article was originally published by Zero Hedge

Commodities’ King Sees “Structural Supply-Side Commodity Inflation” Sending Oil To $200

As Omicron anxiety fades (and even morphs into talk of the end of the pandemic phase of COVID), oil demand fears have faded and crude prices have ripped back higher, erasing any losses enabled by Biden’s SPR Release headlines also…

And pushing WTI back up to its highest levels since 2014…

So where does oil go next?

Oil to $100

Easy, Putin thinks so!

It is “quite possible” that the WTI Crude oil prices reach $100 per barrel in light of growing global demand for energy commodities, Russian President Vladimir Putin said on a CNBC panel at the Russian Energy Week in October.

Asked by CNBC’s Hadley Gamble whether the US benchmark could hit $100 a barrel, Putin replied “That is quite possible.”

Additionally, Trafigura, one of the world’s largest independent oil traders, affirmed Putin’s thinking, noting that recovering global oil demand could send oil prices to $100 a barrel, despite COVID challenges to demand.

Oil to $200?

Building on that theme, Russian and OPEC ministers warned last year that if the ‘Net Zero By 2050’ plan is enacted, “we’ll see $200 oil.”

If the world were to follow the International Energy Agency’s controversial road map, which said investment in new fields would have to stop immediately to achieve net-zero carbon emissions by 2050, “the price for oil will go to, what, $200? Gas prices will skyrocket,” Russian Deputy Prime Minister Alexander Novak said.

The “euphoria” around the transition to clean energy is “dangerous,” Qatar’s Energy Minister Saad Sherida Al Kaabi said at the St Petersburg International Economic Forum in Russia in June.

And after a magnificent year in 2021, commodities trader Doug King, who manages the $244 million Merchant Commodity Fund, said oil could soon hit $100 and even $200 over the next five years due to a lack of exploration and investment to maintain existing supplies.

“We believe in structural supply-side commodity inflation that most will not have ever seen — the highest since the 1970s,” he said in an interview.

“Only OPEC will react to price metrics and they are undershooting every month.”

As Bloomberg reports, OPEC and its partners are gradually increasing crude output after making deep cuts of almost 10 million barrels a day in 2020 when the pandemic first struck. While the group is meant to be pumping an extra 400,000 barrels a day each month, many of its members are struggling to reach their quotas.

“In practice, a lot less oil is making its way to the market,” the Merchant Commodity Fund said in its investor letter.

“Its members are simply unable to return to pre-covid levels of output. This is all down to a lack of investment.

Within the 23-nation OPEC+, the “only real spare capacity” resides in Saudi Arabia, the United Arab Emirates and Kuwait, according to the letter. Even Russia, which leads OPEC+ along with the Saudis, can’t pump much more.

“It’s no state secret that Russia is at, or very near, its maximum,” the letter said.

“If not next month, then certainly by April it may not have any more barrels to give.”

Goldman Sachs is “extremely bullish,” citing low spare capacity among oil producers

And in fact, as we detailed previously, a number of traders are already placing bets on oil hitting $100…

And even $200… These are bets that WTI will hit $200 by Dec 2022…

“I haven’t seen crazy strikes like this in a long time,” said Mark Benigno, co-director of energy trading at StoneX Group Inc., referring to the price in the underlying asset at which the options become exercisable.

“The momentum and trend is higher.”

And finally, what about Oil to $300?

It’s possible… as we detailed previously, whether you think global warming is a hoax and no technology has done more to uplift billions of people out of abject poverty than the harnessing of fossil fuels, or you think the burning of fossil fuels is irreversibly destroying the planet and urgent action to halt their use should be the top priority of humankind, or even if you think both of these things, this article is for you.

I can assure all sides the following: unless something substantial changes – and soon – the price of oil is going way higher… just ask NatGas buyers in Europe. On an energy-contained-in-oil-equivalency basis, natural gas prices reached the following levels in February:

  • SoCal Citygate: $835 per barrel

  • Chicago Citygate: $752 per barrel

  • Houston Ship Channel: $2,320 per barrel

  • Waha: $1,196 per barrel

  • OGT: $6,919 per barrel

  • Henry Hub: $137 per barrel

  • Agua Dulce: $528 per barrel

Sure, the price of natural gas didn’t stay there, but it went there. I use this extreme example to illustrate an important point. Fossil fuels are hugely inelastic commodities. Shortages send prices soaring because they are needed and there are not yet fungible substitutes. Society might hate fossil fuels, it might even hate them for very good reasons, but society is trapped in its need for fossil fuels, at least for the time being.

Indeed with quotes like these…

We see a shift from stigmatization toward criminalization of investing in higher oil production.” – Bob McNally, former White House official, “This Time Is Different” Bloomberg May 30, 2021

From today, halt all investment in new fossil fuel supply projects and make no further final investment decisions for new unabated coal plants.” – IEA Roadmap to Net Zero by 2050

Perhaps $100, $200, $300 crude is not so far away.

There is at least one person who is hoping that Doug King is wrong as we wonder just what would happen to the president’s approval rating if Gas prices at the pump reached $4 (at $100 WTI) or $7 a gallon (at $200 WTI)…

Source: Bloomberg

Better start making some more calls Joe?

Tyler Durden
Fri, 01/14/2022 – 13:32


Author: Tyler Durden

Precious Metals

Oklahoma to Consider Holding Gold and Silver, Removing Income Taxes

Legislators in Oklahoma aim to protect state funds with physical gold and silver and remove capital gains taxes from gold and silver transactions  ?…

(Oklahoma City, Oklahoma — January 20, 2022) – An Oklahoma state representative introduced legislation today that would enable the State Treasurer to protect Sooner State funds from inflation and financial risk by holding physical gold and silver.

Introduced by Rep. Sean Roberts, HB 3681 would include physical gold and silver, owned directly, to the list of permissible investments that the State Treasurer can hold. Currently, Oklahoma money managers are largely relegated to investing in low-yield, dollar-denominated debt instruments.

Other than Ohio, no state is currently known to hold any precious metals, even as inflation and financial turmoil accelerate globally. Yes, Oklahoma’s own investment guidance prescribes safety of principal as a primary objective for investment of public funds.

“Currency debasement caused by federal monetary and fiscal policies has created an imminent risk of a substantial erosion in the value of Oklahoma’s investment holdings,” said Jp Cortez, policy director of the Sound Money Defense League.

“With most taxpayer funds currently held in debt paper carrying a negative real return, Oklahoma would be prudent to hedge today’s serious inflation risks with an allocation to the monetary metals.”

HB 3681 simply adds the authority to hold physical gold and silver bullion directly – and in a manner that does not assume the counterparty and default risks involved with other state holdings. Rep. Roberts’ measure does not grant authority to buy mining stocks, futures contracts, or other gold derivatives.

Additionally, HB 3681 prescribes safekeeping and storage requirements. The State Treasurer would hold the state’s bullion in a qualifying, insured, and independently audited depository, free of any encumbrances and physically segregated from other holdings.

Oklahoma has become a sound money hotspot, already earning 11th place on the 2021 Sound Money Index.

The Sooner State ended sales taxes on purchases of precious metals long ago. This week, Sen. Nathan Dahm introduced SB 1480, a measure to remove Oklahoma state income taxes from the exchange or sale of gold and silver sales.

The Sound Money Defense League and Money Metals Exchange strongly support these pro-sound money measures in Oklahoma and are actively working to ensure their success. Tennessee, MississippiKentucky, and Alabama are just a few of the other states fighting their own sound money battles in 2022.

      











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Economics

Jamie Dimon Gets Pay-Rise To $34.5 Million In 2021, Goldman Banker Bonuses Surge 40-50%

Jamie Dimon Gets Pay-Rise To $34.5 Million In 2021, Goldman Banker Bonuses Surge 40-50%

After scraping by on just $31.5 million a year in…

Jamie Dimon Gets Pay-Rise To $34.5 Million In 2021, Goldman Banker Bonuses Surge 40-50%

After scraping by on just $31.5 million a year in both 2019 and 2020, JPMorgan’s board has decided that CEO Jamie Dimon deserves a pay rise in 2021 (well, have you see what inflation is doing to the cost of living?).

The 10% pay-rise notably outweighs inflation though as the package includes $28 million of restricted stock tied to performance, an annual base salary of $1.5 million and a $5 million cash bonus – pushing his total compensation up 10% YoY to $34.5 million.

“Amid the continued challenges of Covid-19 and supply chain disruptions, under Mr. Dimon’s stewardship, the firm continued to serve its clients and customers around the world,” the bank said in the filing.

It did so “during a time of unprecedented business demands, while supporting and providing a safe work environment for its employees and investing in and executing on strategic initiatives.”

As a reminder, both Dimon and his top deputy, Daniel Pinto, were awarded special bonuses last year to entice them to stay in their roles for a “significant number of years.”

And one more thing… While one can crow about JPMorgan earning $48.3 billion last year (a 66% jump from the prior year), we note that almost $10 billion of that came from reserve releases after potentially soured loans predicted at the start of the pandemic never materialized… all thanks to trillions of dollars in buying and commitments The Fed bailed the banks out with.

Ok just one more thing… JPM stock rose 25% in 2021, but underperformed the S&P 500 and the KBW Nasdaq Bank Index.

“We will be competitive in pay,” Mr. Dimon said last week on a call with analysts.

“If that squeezes margins a little bit for shareholders, so be it.”

JPMorgan is not alone in ramping up banker pay…

Following comments from Goldman Sachs’ CEO this week that the bank would not shy away from handing out hefty bonuses to retain top talent, Reuters reports that Goldman increased its annual bonus pool for top-performing investment bankers by 40% to 50%.

That is on top of the one-time bonuses we previously reported for Goldman’s top-talent.

Bottom line: it’s good to be king.

Tyler Durden
Thu, 01/20/2022 – 17:16


Author: Tyler Durden

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Precious Metals

Gold Uptrend Confirmed

It’s been a turbulent start to the year for the major market averages, with many sectors like Retail (XRT) and Staples (XLP) being hit by inflationary…

It’s been a turbulent start to the year for the major market averages, with many sectors like Retail (XRT) and Staples (XLP) being hit by inflationary pressures and continued supply chain headwinds while worries about rate hikes leading to a cool-down in valuations in tech. However, one asset class that is holding its ground is gold (GLD), which is up 1% year-to-date, outperforming the Nasdaq by 700 basis points. This outperformance appears more than overdue, with gold typically performing its best when real rates are deep in negative territory, in line with the current backdrop. Let’s take a closer look below:

(Source: YCharts.com, Author’s Chart)

Looking at the chart above, we can see that real rates continue to trend lower and are now sitting at their lowest levels in decades, spurred by continued high single-digit inflation readings. This backdrop has typically been very favorable for gold, given that investors are not getting interest elsewhere, meaning there is no opportunity cost to holding the metal, and there is an opportunity cost to holding cash. The one impediment to gold’s performance, though, has been the fact that the major market averages have been climbing higher with a relentless bid, allowing investors to park their cash safely in the market.

Chart, line chart

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However, since the year began, this does not appear to be the case, and gold is massively outperforming the S&P-500, as well as growth and value ETFs. This has created a perfect storm for the metal, and its outperformance can be highlighted by the above chart, which shows gold recently breaking out to new multi-week highs vs. the S&P-500. A new trend upwards following a period of significant underperformance has typically led to sustained rallies in the gold price, with the most recent example being February 2020 ($1,500/oz to $2,050/oz). Hence, this is a very positive development for the gold bulls.

The key, however, is that gold’s outperformance vs. the S&P-500 is not simply due to the S&P-500 being in a bear market and gold trending lower, but just losing less ground. The good news is that this is not the case, with the monthly chart for gold showing that it is building a massive cup and handle, with much of its handle being built above its prior resistance. This is a very bullish long-term pattern, and a successful breakout above $2,000/oz would target a move to at least $2,350/oz. 

Chart

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(Source: TC2000.com)

Meanwhile, if we look at the yearly chart above, we can see an even better look at the cup and handle pattern and why the discussion that gold is dead or in a deep downtrend is simply incorrect. While one can certainly make the case that gold has gone nowhere over the past 18 months and the daily chart remains volatile, the big picture has rarely looked better in the past several decades, and zero technical damage has been done. So, for investors looking for an asset with a favorable fundamental backdrop that’s also sporting a very attractive looking long-term chart, I am hard-pressed to find anything as attractive as gold among the 150+ ETFs and assets I track. 

Chart, line chart

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(Source: TC2000.com)

So, what’s the best course of action?

One of my favored ways to play the gold sector is Agnico Eagle Mines (AEM). The reason is that it has one of the best margin profiles sector-wide; the potential to increase production by more than 30% over the next nine years, and it operates out of the most attractive jurisdictions globally. This is evidenced by the fact that AEM should be able to grow annual gold production from ~3.4 million ounces to ~4.5 million ounces between now and 2030 and has 50% margins at a $1,800/oz gold price. 

Chart

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(Source: TC2000.com)

As the chart above shows, AEM’s technical picture continues to improve, with the stock building a 10+ year cup and handle base atop its prior multi-decade breakout level. This is a very bullish pattern, and a breakout above $70.00 would target a move above $95.00 in the next two years. So, with the stock consolidating near the right side of its cup and trading at a very attractive valuation of 1.0x P/NAV, I see this as an attractive entry point. Notably, AEM also pays a ~2.7% dividend yield, double that of the S&P-500. For those preferring to invest in gold, I continue to expect a trend of higher lows, with the $1,750/oz – $1,780/oz area representing a very low-risk buy zone. 

It’s no secret that GLD has massively underperformed other ETFs over the past 18 months, and with many focused on the last shiny thing and having recency bias, it’s no surprise that gold remains out of favor. However, the best time to buy the metal is when it’s been hated and has corrected sharply from its highs, making this an attractive entry point. Given that most other ETFs could use a rest, and the fundamental backdrop remains very favorable for gold, I remain medium-term and long-term bullish, and I would not be surprised to see gold above $2,080/oz this year. 

Disclosure: I am long GLD, AEM

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

The post Gold Uptrend Confirmed appeared first on ETF Daily News.

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Author: Taylor Dart

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