Long term fundamentals favor oil and gold price rises

Implications: Crude may not see the highs of last year but will trade higher as 2009 ages and gold could test the highs as a result of actions being taken to deal with the financial crisis in America and the stimulus plans to restart the economy. While demand has fallen due to the current global economic crisis, the fundamentals for crude favor price increase rather than much lower pricing. Some of the same fundamentals that favor a price increase for crude will also have a similar effect on the price of gold.

Analysis: Before getting into price predictions for 2009 for these two commodities it could be beneficial to understand some of the primary fundamentals that factor into the pricing of each.By understanding these, it is then easier to look into the future and gain a better grasp of where prices are likely to go in any given time period.

Crude oil prices are set primarily on a global supply and demand formula. The two primary factors in the formula are global economic activity, including consumer spending and the status of existing production fields and the level of new production being brought into the supply side of the equation.

Gold prices are set in accordance with inflation rates, exchange rates and the status of the global geopolitical situation at any one point in time.

Speculative interest and direction in both of these commodities serves as a swing factor that can add momentum to the direction caused by the fundamentals.

Now to specifics of each.

Gerson Lehrman Group