Earlier this week, I posted the following on X:
Outside of the dancing scene, which I’m sure got a lot of impressions, the purpose of posting this was to point out that we’re starting to see some genuinely unusual behavior all across the financial markets. And it’s behavior that could be portending some quite negative for investors.
All of these things are interconnected and they’re beginning to tell a similar story. The economic slowdown in the United States and globally is real and the credit event appears to be getting closer to reality all the time.
Let’s break these down one by one.
Oil Prices
Crude oil has been impacted by all sorts of geopolitical and weather related issues. First, OPEC has limited production for a while in order to keep prices elevated. Then it announced it was going to ramp up production only to walk it back later because demand was clearly deteriorating and they didn’t want to tank prices altogether. Libya announced that it was going to halt some of its production & exports. Now, we’ve got a hurricane in the Gulf Coast that threatens to disrupt short-term supplies.
While all those machinations are going on in the background, the key driver of falling crude prices is lower demand. This is primarily coming from China where weak consumer behavior, a migration towards electric vehicles and an ongoing property sector crisis are creating a global demand problem for one of the world’s biggest oil importers.
It’s increasingly looking like 2023 may have been the peak demand year and we could be in for a period of contraction before there’s any potential recovery. Oil prices have been steadily declining since July and, even though they’ve risen in recent days due to weather-related concerns, conditions are favoring them to remain depressed as long as demand is subdued.
Gold
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