Saturday, October 5, 2024

Quick Update and thoughts on oil and gold.

My portfolio surged past SGD 1.2m last week, everything has been going right the past month.  The cherry on top was a the oil price shooting up due to fears of Israel attacking Iran's oil infrastructure.

I can't see any effect if Iran's oil export facilities are bombed.  Iran only produces 3.7m bpd, half of which is exported - say under 2m.  The Americans can release 1m bpd from their SPR for a month or two.  Last year Saudi Arabia voluntarily cut 1m bpd, and OPEC+ an additional 1m.  The world can make up for it.

Iran may retaliate against Saudi Arabia's oil facilities, that would cause a large oil increase.  And a long lasting one.  Don't think it'll happen, but its a small possibility.

I still expect oil to stay around $70-90 for a while, until reserves go down.  Politics can drive it higher (middle east war) or lower (Trump peace deal with Saudis).

My portfolio is now heavily weighted to oil.  Luke Gromen (33:52) suggests that gold will replace US bonds as a reserve store-of-value.  Gold is the 'release valve' in the world's search for a new reserve currency. Governments would prefer gold to go up instead of oil - as oil is inflationary, even though they don't control it....they could affect it to try to increase production and stop oil rising too much.

In this scenario, I think gold miners skyrocket, while oil producers do ok (as oil hovers in between $70-90).  Might be worthwhile buying more gold miners.  They will go up unless:

  • there's a non-inflationary recession (interest rates and gold goes down), or
  • oil surges (diesel is a large cost of mining).
So its a good hedge to oil producers, and will probably go up anyway.

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