Johannesburg — LOWER petrol prices have provided motorists with unexpected Christmas bonuses, enticing them towards holiday destinations. As streams of cars headed out of Gauteng, a traffic cop remarked that he hadn't seen such volume for several years.
His "several years" probably meant since 2005, when the oil price was last at its current level. Not that the petrol price is anywhere near the R4,13 that was the early 2005 level, but then the dollar-rand exchange rate was about $1/R6 compared with the current $1/R9,77.
The world is awash with oil. As a 2-million-barrel-a-day cut in production had no effect, Opec has cut 2,2-million more a day. Crude prices have fallen so low producers have leased supertankers to store the oil at sea, hoping oil will rebound. "There's just so much oil in inventory out there right now," said Michael Lynch, president of Strategic Energy & Economic Research. "Nobody wants to buy this stuff."
Phil Flynn, an analyst at Alaron Trading, said: "You've got a commodity that people are buying less of because they can't afford to buy more. People are fearful. They have a lack of confidence in the economy. "
But rather than the oil price, anorexic order books are causing such closures. While Flynn is referring to the US, our manufacturers and producers are suffering from a lack of export orders, and tighter purses at home.
Nevertheless the stock market is on the rise and the gold price is improving. The weekly chart shows how, from 2005 until early last month, there was a close correlation between gold and oil, and a closer correlation between oil and the stock market. The first exception was in March to June this year, and the second began in late October when gold rose strongly as oil fell.
It's likely that the current rise in gold is based on worries about the dollar . While Europe is also in serious trouble, the dollar had lost 13% against the euro in the past 14 working days. The next gold count is $1338 while the dollar has already nudged below the € 1/$0,76 count. Cycle trend charts warn that the dollar may soon gain ground, while gold marks time . The oil price has already fulfilled several down-counts, and is bouncing around its latest down-count and support at just above $40. If support holds and oil bounces up on the latest production cut, this would be another plus for gold.
Gold shares have lifted in the past few weeks, but their cycle trends future plotting shows them drifting sideways in the short term. However, physical gold, in the form of krugerrands, has reached a record high and is in a strong bull trend. EFT NewGold is also at a record high, but along with krugerrands the future plotting is gently downwards in the short term. As these counters depend on the rand-dollar exchange rate and dollar gold price, downward moves may be signalling an improvement in the rand's value rather than a drop in gold.
While it moved upwards, the JSE overall index has not yet passed the 22500 that I deemed to be the confirmation point of the reverse head and shoulders mentioned last week. As we have entered the silly season , I'm not expecting much market change over the holidays. However, as this year has been filled with drastic events, more may be lurking in the shadows.
