Markets move pretty fast
If you don’t stop and look around once in a while, you could miss it
Months went by in the gold market where nothing happened and then in a week everything changed.
Gold hit a bottom on 9/28/21, it has since rallied to $1,922.40. The geopolitical unrest has certainly helped gold price action. Silver has a similar profile. During times of market turmoil, we are able to identify where strong hands are present. From the recent selloff in unprofitable tech companies and strong rise in gold, oil, and silver, I think we can all put one and one together. Momentum traders won’t be far behind. I believe that the market is finally coming to grips with the fact that the Fed is losing control. Even the major banks are beginning to temper their expectations of the Fed increasing the Fed Funds Target Rate.
This is creating turmoil in the market as investors begin to reassess risk. On top of that, the Fed has been reducing liquidity in the market through their taper program. This has led to some wild gyrations. Unfortunately one of the casualities of this volatility was my ZIM holdings. They got stopped out yesterday and this morning. I had set several stop loss orders to make sure I would be able to secure a return. I came out of the deal with about a 12% gain. I’m still a believer in ZIM and I’ll will still be following them closely. I think there are some strong hands holding here but Mr Market has taken a few too many crazy pills and let his hallucinations abound. I’m not here to say the market is wrong while I lose what profit I had. I’ll let the market figure it out and come back in when the time looks ripe.
Another asset getting tossed around by the geopolitical atmosphere is oil. We are drifting dangerously close the $100 mark on the /CL contract. I have already reported that this price rise is becoming political. This has led to two developments. The first is that buyers of Russian crude oil are getting locked out of the market by their banks.
A letter of credit is a letter issued by banks that guarantees a buyer’s payment to a seller will be received on time and for the correct amount.
Buyers of Russian oil include Big Oil companies such as BP, Chevron, Exxon, Shell, and TotalEnergies, to name just a few.
Banks are nervous about lending money to those that want to purchase oil from Russia. They are unsure how the US administration will react. A hidden little gem in this article caught my eye.
Vitol also trades with Russian mining companies, according to Vitol’s website.
More on this development in a minute.
The second political development is that the Biden administration is planning a second draw from the Strategic Petroleum Reserve (SPR). This went so swimmingly last time that they thought that they would attempt it again. I expect the same action in oil the second time around.
This will be another buying opportunity. Keep a close eye on how oil reacts on the continued news of a SPR release. On top of that, if tensions ease in Ukraine, expect oil to step back from the ledge. Keep in mind that none of the fundamentals have changed. The current administration is hell-bent on killing the fossil fuel industry through strangling capital expenditure and development, inflation is running rampant, and OPEC+ is running low on spare capacity.
This will continue to lead to higher oil prices until something breaks.
In addition to oil, banks are nervous to allow businesses to trade with Russian mining companies. This means that these commodities will also see out-sized gains in the coming weeks as this tension in eastern Ukraine continues. Alex Kimani of oilprice.com outline the top 5 commodities are set to explode.
#1. Aluminum
#2. Oil
#3. Natural Gas
#4. Copper
#5. Cobalt
JP Morgan came to the same conclusion.
I would add to this list agricultural fertilizer as Russia was the main exporter of it worldwide in 2020. We are about to see the price of food rise higher than many anticipate.
Mish is already reporting that Biden is backing down on sanctions against Russian aluminum. How long until the rest of these sanctions collapse?
Since the banks are restricting companies access to Russian goods, ERUS and RSX have taken extreme tumbles. These are Russia ETFs. In five days, ERUS is down 39%. Today it is down nearly 20% alone! I’m not in the business of catching falling knives but I will be watching these ETFs like a hawk. The bulk of their holdings are resource miners and these companies are making money. ERUS is now selling lower than it has in the past 5 years. You have to go back to 2015 when oil took a dive, to find a comparable price.
