Oil and gold are priced at two opposite extremes, reports Sherine Nasr Oil registered its lowest point in 11 months as it hovered around $78 per barrel (pb) over the past week. It would not be far-fetched to expect further drops, experts believe, so long as the current financial crisis persists. Last Friday, the price of crude fell by a phenomenal 17 per cent and closed at $77.70 pb, the lowest level in a year. The accelerated price drops have eroded almost 43 per cent of July's all-time record high of $147.27 pb. Weaker demand in the US and elsewhere, coupled with investors' anticipation of a likely global recession, are the main reasons behind the latest collapse in prices. According to Magdi Sobhi, economic expert at Al-Ahram Centre for Strategic and Political Studies, "the dollar exchange rate was at its lowest, and claims that Nigeria would cut its oil production down created a suitable environment for speculations that reached their peak last July." However, the recent increase in the dollar exchange rate against the euro and yen, in addition to the state of uncertainty which prevailed after the collapse of financial corporations in the US made speculators withdraw quickly, causing oil prices to plunge phenomenally in a very short time. "Add to this the fact that, in its attempt to maintain the balance in the oil market, Saudi Arabia increased its oil output by half a million barrels twice this year," Sobhi added in an interview with Al-Ahram Weekly. In the meantime, the Organisation of Petroleum Exporting Countries (OPEC) will meet 18 November in Vienna, a full month before it was scheduled to gather, to discuss ways to contain the situation. The typical procedure at the moment is to consider cutting down output to maintain market prices. "Such moves, however, will be strongly resisted by Saudi Arabia, Kuwait and the United Arab of Emirates," said Sobhi, adding that only countries that have reached their optimal production capacity will be receptive. These include Iran, Venezuela and Libya. On the domestic front, recent falls in international oil prices will have but little significance for Egyptian consumers, who have progressively suffered the effects of a wave of commodity price hikes spurred by high oil prices all through the past year. In Jordan, for example, fuel prices fell by six per cent as a result of the recent decline in oil prices. According to Sobhi, in Egypt, however, it would not be wise to expect the same measure. After all, the market has only recently absorbed the latest increase in fuel prices. Moreover, it is still hard to predict whether cheaper oil prices will stay that way. On the opposite side of the equation stands gold with some exceptional gains. Seen as a safe investment hedge against the shaky capital markets, gold quickly recovered earlier losses to trade at $913 an ounce, up by $8 last Friday. On 18 September, gold prices rose by a phenomenal $50 to trade at $863 per ounce -- the largest one day rise since February 1980. The World Gold Council's (WGC) statistics for the second half of 2008 show that global dollar demand for gold reached new heights, rising nine per cent to $21.2 billion compared to earlier levels the same year. In the meantime, global investment demand for gold showed the strongest surge, reaching $3.5 billion with a 29 per cent increase compared to the same period in 2007. Particular strength is seen in the US, China, Egypt and Vietnam. Gold is an asset that bears no credit risk. It is unique because it is both a commodity and "a monetary asset", underlined a recent WGC published report on gold's response to the current financial turmoil. In addition to being a safe haven, "gold is seen as a hedge against inflation; while its real value can vary in the short term, its purchasing power has remained stable over centuries." In addition to supply and demand fundamentals, some short-term factors have helped to maintain high gold prices. "These include the gradual reduction in mine output in recent year. The small number of major gold finds is also constraining supply," said the report, adding that the cost of extracting gold has also increased substantially in recent years. On the local market, gold maintains good sales despite recent price hikes which sent one gramme of 21- karat gold to LE135 this week after it was traded for LE115 a few months ago. "Investors readily turned to gold as they felt uncertain about the performance of the capital market in light of the present international financial dilemma," said Abdel-Aziz El-Mawardi, a gold trader who believes gold sales will continue to thrive past the US election.
