Global Uncertainties Fueling Crude Oil and Gold Prices

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Global Uncertainties Fueling Crude Oil and Gold Prices

 
Despite the surge in demand for electric vehicles across the world, market analysts are speculating that the demand for crude oil is likely to remain higher than average until 2030.
 
Crude oil
The funding need of Saudi Arabia, the largest OPEC producer, is expected to push the crude oil price to at least USD 72 per barrel this year. Various analyses have shown that Saudi Arabia wants to maintain the crude oil price at USD 80-85 per barrel to meets its 2019 budget. Similarly, the ongoing political crisis in Venezuela will also be another factor that is likely to push the oil price higher. The political mess and economic crisis in the South American nation have led to a sharp decline in the country’s crude oil production. Despite the surge in demand for electric vehicles across the world, market analysts are speculating that the demand for crude oil is likely to remain higher than average until 2030.
 
Forecasts show that the US oil production will average 12.3 million BPD in 2019 and is expected to increase to 13.0 million BPD in 2020. The world’s largest economy has been producing crude oil from its shale reserves to its highest capacity to curb inflation. On the other hand, China’s consumption of crude oil, which is the highest in the world, has slowed down as its export-fueled economic growth has run out of steam over the last few years. If China signs a new trade deal with the US, then the factors behind its economic slowdown will recede. Technically, the price of crude oil has been trading over USD 50 per barrel for a long time. If it is over USD 62, then the next target would be USD 68-72 per barrel.
 
 
Gold
The price of the precious yellow metal has become volatile this month. From a bullish point of USD 1,280 per troy ounce on March 7, the price of gold went to a high of USD 1,325 per troy ounce on March 25. The 4 EMA (4 Days Exponential Moving Average) is still at USD 1,316 per troy ounce, and the current price has been above 4 EMA for a while. The political incertitude across the world, fears of a military clash between US and Iran, deterioration of US-Venezuela relationship, the recent Indo-Pak skirmishes, Syria’s volatility, US-China trade war and economic and political tensions in the Gulf peninsula have signalled economies to hoard gold as a safe-haven asset. The fund managers across the globe have also been taking gold as a hedge against political and economic uncertainties.
 
The International Monetary Fund (IMF) has indicated major economies to consider cryptocurrencies as digital currencies. However, Bitcoin, the world’s highly valued cryptocurrency, has been banned by US authorities, and the yellow metal has once again become attractive to many investors. If gold can sustain its allure and the US-China trade war continues, gold may reach a record high next year. The demand for gold in India and China will also be another supporting factor in this regard. The Chinese economy has slowed down due to economic contention with the US, while India is observing parliamentary elections in April and May of this year. No doubt, the election results will also have an impact on the supply and demand of gold in the international market. If the current demand sustains, the price of gold may take a considerable leap. India remains the largest importer of gold with 1,400 tonnes per annum followed by China’s yearly import of 1,151 tonnes.
 
 
 
USD Index
The foreign policy of the US and the world political affairs have been dramatically affected by the actions (and Tweets) of the US President Donald Trump. Be it the US-North Korea affairs, US-China trade war, relationship with the North Atlantic Treaty Organization (NATO) allies, US-Russia relations and economic diplomacy with growing economies like India have been major showdowns of the Trump administration. The world agrees on the sturdy economic growth as recorded after the then US President Bill Clinton has been possible in Trump’s era. However, there are signs of economic weaknesses of the US, which are likely to be visible soon, in the absence of long-term growth. Critics of US dominance around the world are not surprised to see that China’s rising global influence has taken the global media by storm including the recent entry of Italy as the first European nation to join the Belt and Road Initiative (BRI) of the Asian economic powerhouse. The two countries have signed deals in energy, finance and agriculture. Similarly, major Italian gas and energy, and engineering firms have been offered entry into the Chinese market. The endorsement of BRI by Italy could also be a point in terms of China’s strengthening of more entry points towards financial deals and influence in other European countries. Despite these developments, the greenback has stayed strong due to the healthy economic growth of the United States. The USD Index above 92 should be supposed as a hawkish value for the greenback.
 
Indian Rupees
Though the Indian Rupee (INR) has gained momentum against the US Dollar over the past month, the outcome of the upcoming elections is likely to weigh on the value of India’s currency. The current government of Indian Prime Minister Narendra Modi has strategically decided the long-term economic prospects of the South Asian nation in its last five years of governance. Therefore, if the same government continues after elections, the hawkish gesture in the Indian economic policy can be expected to continue, which will determine the value of INR.
 
Experts say that the tit-for-tat trade dispute between China and the United States may do little to protect the domestic producers in either country.  In case if a prospective US-China trade deal fails to resolve the issues, EU members can see their imports from India likely to grow by USD 70 billion. India is also among the countries that will benefit from the ongoing tensions between the world’s two largest economies. India can take over China’s position as the world’s fastest-growing economy if  China's problems do not recede. Hence, the value of INR before the upcoming general elections shall range at Rs 66 to Rs 72 per USD. 
 

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