Part 2. Russian Ruble, Metals, Crude Oil
The second part of my forecast for 2014 is devoted to the Russian ruble and the major commodities – gold, silver, and crude oil.
Month after month, we have to revise up our forecasts for the USD/RUB pair. However, the ruble’s fall exceeds all the forecasts anyway. This week, the dollar has already tested the level of 39.8 rubles, setting a new historical record.
The reasons for such negative ruble dynamics are the following:
- Large-scale strengthening of the US dollar, especially against the emerging market currencies
- A drop in oil prices, which has struck commodity currencies the most
- Slowdown in the Russian economy. Seasonally adjusted GDP fell by 0.4% m/m in the month of August
- Reluctance of the Russian Central Bank to tighten monetary policy
- New sanctions against Russia, imposed by the West, this time in the oil sector
However, I don’t expect the USD/RUB to break above 40 rubles a dollar, if Brent crude oil prices remain above $95. Currency basket has already reached the upper border of its range, which indicates the beginning of intervention by the Bank of Russia. However, the fall in oil prices into the range of $ 90-95, will most likely force the central bank to accept the dollar’s growth above forty rubles.
Gold and silver
Precious metals traded worse than I expected in the month September: gold approached $ 1,200 per ounce, silver dropped below $ 17. The US dollar’s strengthening together with rising concerns about China’s economy have put commodity assets and precious metals in particular under significant pressure, so that they failed to hold within their previous ranges. Stabilizing situation in Palestine, Ukraine, etc. decreased demand for gold and silver as safe-haven assets. Nevertheless, precious metal quotes are approaching the levels of profit, which in my opinion gives reasons to anticipate their recovery to $ 1,250 for gold and $ 18 for silver by the end of the year.
Crude oil dynamics this autumn is disappointing too. Brent crude prices slipped below the key level of $ 100 per barrel and renewed two-year lows near $ 94. Oversupply, which I mentioned about a month ago, has become obvious. In September, the Organization of the Petroleum Exporting Countries, OPEC, increased supplies of black gold by more than 400 thousand barrels per day. About 70% of this volume falls on Libya.
Only if OPEC countries agreed to cut back production could support the market. However, Saudi Arabia looks to be the only proponent of this idea. Unilateral reduction of supplies from this country alone is unlikely to have substantial positive effect on prices, given that Libya is capable of increasing the oil export by about 250-300 thousand barrels per day. We can only hope that at the November conference the members of cartel eventually decide to slash production to raise Brent prices back to $ 100 a barrel. If they don’t, oil will probably settle in the range of $ 90-95.
I hope that my projections will help you in planning your operations in financial markets!
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