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Ben Davies: Gold Is Worth $6,000

“Ben Davies, CEO of Hinde Capital, spoke to King World News yesterday giving his thoughts on where gold is headed next. He is somewhat bearish, saying gold could fall over 10 percent to around $1400 per ounce as Europe continues to muddle through its crisis.

Davies told King World News:

If you look at it on a relative basis, gold has maintained its purchasing power. It’s done exactly what it should be doing. Short-term I am concerned that we could be going down to $1,400. Yes, that’s a real risk in this environment…”

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Will Oil Tumble Further?

Oil fell to its lowest levels in a year and a half on Thursday as a glut in supply and weak demand weighed on prices. But while Brent crude recovered some of those losses on Friday, the outlook for oil remains weak and sanctions imposed on Iran are likely to make matters worse, Dan Yergin, co-founder and chairman of energy research consultancy Cambridge Energy Research Associates (IHS CERA) told CNBC.

Speaking to CNBC from St Petersburg’s International Economic Forum, Yergin said that crude oil prices had dropped sharply because of a large build-up of supply and a lack of demand for the commodity, despite the oil security threat from Iran.

“Basically the Iranian security bid is gone from the price…and what’s dominating the market right now is this very large build-up of supply that’s occurred. Partly from Saudi Arabia very consistently putting oil out into the market, a build-up in Iraq and Libya and an astonishing increase in U.S. oil production which is up 25 percent since 2008” he said.

The U.S. believes that Iran is using funds from oil sales to fund its nuclear program and is leading a total of 18 countries that are cutting down or phasing out crude oil contracts from Iran in an attempt to stymie the Iranian oil economy and to force a change of policy. The EU is phasing out contracts by July 1 and similar measures go into force in June in the U.S at the end of June.

“Set all of that against the weak economic situation, weak demand on a global basis, worry about China and Europe and all of that means you have an oil price that is basically showing weakness and shrugging off the sanctions- even though we are only 2 weeks away from [the U.S putting into force] these very powerful sanctions on Iran.”

But Yergin told CNBC that producers would respond to the drop in oil price by cutting back and taking oil off the market. “It doesn’t work overnight, there’s skepticism” he said. “But then eventually it does work.”

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Brent Rallies a Bit on Speculation Downside is Overdone

Brent is up $0.65 while WTI is up $0.02…

Brent crude rose in London, paring a second weekly decline, on speculation that its plunge to an 18- month low below $90 a barrel was excessive.

Brent’s 14-day relative strength index, a measure of how quickly prices have risen or dropped, was at 19.1 today. A reading of 30 or lower can suggest prices have tumbled too quickly. Brent earlier declined to its lowest since December 2010 after German business confidence fell to the weakest level in more than two years in June, and the Federal Reserve Bank of Philadelphia’s economic index yesterday signaled the biggest contraction in manufacturing in almost a year.

“It’s time for a rebound,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG (RBI) in Vienna. “Below $90 per barrel, the marginal cost projects are not economically viable any more. So some oil companies will have to cut capital expenditure if prices fall further.”

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Crude Inventories

Prior: -0.191 million

Actual: a build of $2.8 million barrels vs consensus of -600k barrels

Distalates: a build of 900k barrels



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FLASH: Gold and Oil Trade Down Before the Fed Meeting

Oil was flat to down overnight and WTI decidedly tanks into today’s Fed meeting. All spurred on by a lower dollar.

WTI is down 1.15% @ $83

Gold is down1.5% @ $1600

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Banks to Use Gold Reserves to Mitigate Derivative Risk – $GLD, $IAU, $AUY, $NEM, $ABX

“The Federal Deposit Insurance Corporation (FDIC) yesterday issued a notice of proposed rulemaking that revises the measurement of risk-weighted assets by incorporating the latest changes to the Basel III framework and by implementing changes brought on by the Dodd-Frank Act. Among the many changes is one that allows banks to use gold reserves to mitigate derivative risk with a zero percent risk…”

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Time to Get Your Ag On ?

There are multiple reports today that corn prices are set to surge. If so then perhaps you may want ot consider the Ag play.

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Spanish Yields Hit Nose Bleed Territory Helping to Reverse Oil and Stock Futures

Oil dropped in New York as rising Spanish borrowing costs pushed the dollar higher, curbing demand for commodities.

Futures fell as much as 1.1 percent in New York after the Spanish 10-year bond yield rose to a euro-era record of 7.13 percent. Greece’s New Democracy and Pasok parties won enough seats to form a majority in the 300-member parliament, according to an official projection. Money managers cut bullish oil wagers for a sixth week, according to the Commodity Futures Trading Commission’s Commitment of Traders Report.

“Investors should remain cautious until Greece forms a government that could stabilize the markets for the short-medium term,” Myrto Sokou, an analyst at Sucden Financial Ltd. in London, said by e-mail.”

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The Number of U.S. Oil Rigs Has Increased by 7X in 3 Years, Bringing U.S. Production to a 14-Year High

Mark J. Perry has published some very surprising charts showing the increase in U.S. oil rigs. His analysis is also worth a read:

Notice also that there was no national energy policy that facilitated the switch, and neither politicians nor the Department of Energy was involved; it happened naturally and automatically due to the economic principles of market prices, profit maximization, and the invisible hand.

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Rise in US Oil Supplies Haunts Opec Talks

Who would have thunk it?

At a seminar in the Opec headquarters in Vienna on Wednesday, the rise in US oil supplies was the shadow that fell over every discussion. Over the past three years, the US has accounted for the entire net increase in global oil output, excluding Opec members and former Soviet republics.

And what is causing the increase in supply?

Advances in the techniques of horizontal drilling and hydraulic fracturing, first applied to shale gas reserves, are now making it possible to develop US oil in reserves previously commercially unviable [sic].

DAMN that American ingenuity.

Read the article here.

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