What highs will gold and oil head for next?

As politicians “spend money into worthlessness”, gold and silver become the obvious alternatives to the devalued dollar. When the credit bubble bursts, the price of gold should soar even higher. But how high?

Because our work involves copious reading, we often come across a succinct expression that in a few words encapsulates a complex and vitally important subject. This week in his Dow Theory letter, the octogenarian market commentator, Richard Russell, said about the future of fiat money that "It is the nature of politicians to spend currency into worthlessness."

He regularly maintains that all fiat money is eventually doomed and to prove his point the dollar lost about 50% of its value whilst Alan Greenspan was, for 18-years, at the Fed's helm.

Commodities prices: gold at $1000/oz?

There are unique times of danger when Central Banks and governments in power feel forced to take excessive risks and such has been the case for the last six years. To fight deflation and recession, new levels of credit creation have been achieved, leading to massive debt bubbles and consequently, making it even less attractive to hold dollars. Gold and silver offer themselves up as the logical secure alternatives. That the bull market in gold started in 2001 when this hyper-loose money experiment by the Fed really got underway is no surprise. If the debt bubble now bursts, the Fed will embark upon yet more easing and gold should become even more attractive; its next run, up to $1000/oz, could quite easily follow. At this stage of the game we have no doubt that gold will, in its own good time, make its way to $1000/oz. When it gets there we will remind ourselves that, in real terms, to match its previous high set in 1980 of nearly $900/oz, it would need to exceed $2000/oz.

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RHAM portfolios do not invest in gold bullion; they invest in funds holding mostly unhedged gold mining shares. On any further strength for gold, these will disproportionately benefit because an investment in gold mining shares is comparable to a geared investment in gold bullion.

Commodities prices: oil to hit £80 a barrel?

The bull market for oil sustains as the price continues to hold above $70/barrel. We worry about the implications of a global recession but, for the time being, geopolitical tensions add, not detract, and the hurricane season is only just upon us. In the short-term, we think $80/barrel is more likely than $60/barrel and in the long term, if we slept for 10-years and then woke up, our guess is that the oil price will be much higher than it is now; the economic centre of the world would be somewhere in Chindia, with a new huge middle-class driving big cars, enjoying air conditioning in their homes and jetting around the world.

By John Robson & Andrew Selsby at RH Asset Management Limited, as published in the Onassis Newsletter, a fortnightly newsletter that gives insight into the investment markets.

For more from RHAM, visit https://www.rhasset.co.uk/

For more on investing in gold, see: why you should invest in gold - or, even better, silver - now; and why the weak dollar means you should buy into gold. Earlier this year, James Ferguson suggested that oil could reach $90 a barrel, read his views here: how to profit from soaring oil prices.