Year-end leap in oil price could bode well for gold in 2009

With OPEC seemingly determined to drive oil back to around $100 a barrel, this should be very positive for the gold price as the dollar suffers.

LONDON – Oil, and to a lesser extent gold, recorded a strong price surge on the final day of the year, which could be bad news for the U.S. dollar, but positive for precious and base metals at the beginning of 2009.

Oil is arguably the most oversold commodity of all in the markets having fallen from $147 a barrel in July down to as low as $32 a barrel in recent weeks, despite OPEC’s avowed policy to cut production by some 2.2 million barrels a day to restabilise prices at a higher level. Indeed OPEC would like to see the oil price back to $100 a barrel and certainly has the muscle, if perhaps not the will, to continue production cuts until this is achieved.

Longer term the peak oil scenario, which sees production potential reaching a maximum followed by a serious decline, if correct, would suggest a continuing high oil price environment from late in the next decade, although timing of the ‘peak’ is open to argument. Cognisant of the reserve depletion likelihood, major oil producers may thus be more ready to make production cuts to maintain prices at what they see as reasonable levels with a contrarian effect on the strength of the U.S dollar as, for the time being at least, the world’s largest consumer of oil and oil products. Some would say that security of continuing oil supply is what the Iraq Wars have, in reality, been all about.

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