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Gold and Oil Price Trends and Forecast

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The focus of this article is the connection
between gold and oil prices. Our goal is to analyze and forecast the price
movements of these commodities.

Investors believe that changes in the gold
price can have an impact on the worldwide economy. In general, gold prices
reflect changes in the value of the US dollar compared to other currencies.

When the dollar is strong, gold will be
less expensive in foreign countries, therefore
it tends to cut demand and put pressure on gold prices, pushing them down in
dollar terms. The opposite is also true. When the US dollar weakens, it makes
gold more attractive to purchase. In that way, there is a higher demand, which
pushes gold prices upward.

This first part of this article is devoted
to gold price in 2018. According to the historical gold chart, it is possible
to visualize that price continues its downtrend in 2018. Let’s analyze the
chart below.

According to the chart, gold prices were
below $1350 in April, when the downtrend began. Another important price point
to consider is $1185 (the bottom of the trend). This support level appeared in
August, and since then gold has been moving inside the price channel either
near resistance level or near support one.

Since gold has a reputation of a safe haven
investment, during economic booms investors choose riskier stock with higher
returns. The United States’ GDP came out at 3.5%, while American unemployment
rate was at the lowest level since 2001.

Given the optimism about the US economy, it
is reasonable that investors leave safe investments in precious metals and
shift towards better-performing financial instruments, illustrating the
negative correlation between gold and the American currency.

In the second part of the article, we will
focus on the oil prices during 2018. In September, global oil prices hit a
four-year high after OPEC promised to keep production steady. Investors
believed that the US sanctions against Iran and power cuts in Venezuela would
lead to supply shortages.

However, US oil production increased, and
oil prices entered a bearish market. It means that prices have been volatile
thanks to swings in oil supply, because the oil industry has changed in fundamental
ways. Mainly, the United States is producing so much oil to avoid the cost of
stopping oil rigs.

Besides, Saudi Arabia also did not want to
lose market share to American oil producers and felt that lower prices would
force the US producers to reduce its competition. Let’s analyze the oil prices
chart below.

From the end of September to the end of
October, crude oil price was declining at the fastest rate since July 2016. In
addition, the Chinese economic growth was lower than expectations and
influenced the economic indicators in several countries.

Consequently, it led to market concerns
over the oil demand growth. Financial markets also displayed price volatility
in October, contributing to sell-offs in risk assets such as equities and
commodities.

In 2019, according to the International
Energy Agency, the global oil demand growth is basically unchanged, as a weaker
economy is mainly offset by lower oil prices. Global oil supplies are still
growing rapidly, as record output from Saudi Arabia, Russia and the US more
than the production declines from Iran and Venezuela.

In conclusion, among the most important
supply-side factors weighing on pricing expectations are the US oil
production
, the US oil stocks
and OPEC oil
supply
. Oil price forecasts for the next year will depend on the
interaction between supply and demand on international markets. If the
scenario of the end of 2018 remains the same, in 2019 it will be possible to
see the global oil price continue its bearish trend.







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