The oil price has risen for seven consecutive days. What we have here is a bull market close to its recent high. Demand from the US driving season has started and the hurricane season is with us until October.
We don't doubt that supply inelasticity and the growing demand centred upon Chindia is what the oil bull market is about, and, for added spice, supply disruption spikes are very likely.
There is a risk that our fears of a global recession could undermine demand and cause a setback in the price. Nonetheless, portfolios hold investments in this sector from which we expect, over the coming period, to benefit.
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Importantly, we have decided that the gold bullion correction ended, climaxing on 14th June, the day gold fell by $44/oz to $544/oz. At the time of writing, the gold price is back above $600/oz.
As we have said in recent issues, the ratio of gold mining shares to the metal has registered a very low point for gold mining shares. On any consolidation or better still, strength for gold, then gold mining shares should disproportionately benefit. The last time the ratio was at this level was May 2005; over the following year investments in the Merrill Lynch Gold & General fund more than doubled.
It continues to be our belief that gold will uniquely benefit from the resolution of the global imbalances and the inevitable loss of faith in fiat money. Central banks throughout the world, led by Japan, adopted a policy of limitless money creation. Gold is the sane man's alternative. The extra-ordinary belief that the value of fiat money can be sustained irrespective of the rate of supply is quite mad.
Until the shoe-shine-boy and the black-cab driver tell you that gold's the thing, this particular bull market will continue. We don't try to guess how high it will go, only that our next target is $1,000/oz; a target we have little doubt will be reached and probably exceeded maybe by a lot!
The battle between gold and paper money is on and there is only one likely winner.
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/
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