18 December 2014

The Oil Markets First Casualty

The oil markets dramatic collapse recently has taken is first casualty. Monday night the Russian Central Bank raised interest rates by 650 basis points to 17% from 10.5% in an attempt to halt the decline of the Russian currency.

The move by the Central Bank did not work as the rubles remains volatile. According to an article on business Insider, as of Tuesday evening, the currency is down by more than 20% over the week and down by 56% for the year. (Source: Business Insider 12/16/14)

To compound matters for the worst the Russian Stock Market RTS Index lost 12% on Tuesday, which was the biggest drop since November of 2008. (Source: Bloomberg 12/16/14) According to the article the RTS Index has lost almost a third of its value this month.

 With the plunge in the Ruble, consumer prices are now on the rise. According to another story on Bloomberg, foreign companies in Russia are raising prices seeking to offset the drop in value from sales in the currency. Some items have jumped 20% in a matter of weeks. (Source: Bloomberg 12/17/2014)

The plunge in oil and commodity sectors highlight the economic challenge that is in front of countries like Russia who are dependent on oil exports. Other countries like Canada, Norway and Australia will eventually feel the deflationary forces should commodity prices continue to trend downward.

Gold and Silvers Response

Despite the rapid and persistent decline in oil, Gold and Silver have shown much resiliency this month. That is until Tuesday when both metals finally succumbed to the break down in almost all commodity markets. Silver was disproportionately lower than Gold as the metal closed below $16.

As long as there is instability in the currency and commodity markets Gold and Silver will be up and down. Traders and investors are reacting to the minute by minute news and these massive money flows affect the metals. The Gold and Silver fundamentals will eventually win out but it is challenging to predict when.

More Volatility to Come in the Currency Markets

What is so interesting is that back in July no one predicted the dramatic collapse of the oil market. So as 2015 rapidly approaches there are enough signs that the market volatility will continue to dominate the headlines going into next year.

Central Bank intervention, geo-political events and slowing global economic growth are going to be contributors to the instability. Russia is an early example of how quickly a currency can loose its purchasing power.

Author: celticgold.eu

Older Logistical & Customer Care Times for Christmas and New Years‘ Eve 2014 Newer CelticGold Market Report 19th December 2014