You had to see this one coming. Gold bug Peter Schiff barely waited for the oil to dry before using the industry’s pain to lay the course for the precious metal’s gain.
In a tweet, the Euro Pacific Capital CEO marveled at the U.S. oil price falling to a negative $3 per barrel, which wasn’t even the worst of it today. His awe is understandable considering these are historic lows that investors will probably be telling their grandchildren about one day.
But Schiff didn’t stop there, instead shifting the focus from the pain in the oil patch to the inevitable gains for the gold market and contrasting the short/long trading dynamic in oil to that of the precious metal. The gold price is up nearly 1% at last check, hovering below the psychologically sensitive $1,700 level.
The oil price is now negative $3 per barrel. What is happening now in the #Oil market will soon happen in reverse in the #gold market. In oil the shorts are trying to deliver, but the longs don't want it. In gold the longs will try to take delivery, but the shorts won't have it!
— Peter Schiff (@PeterSchiff) April 20, 2020
The May contract for crude oil is expiring and was already pretty low at below $20 on Friday. But that was only a teaser, as the bottom fell out and the oil market turned negative for the first time ever. It went as low as negative $40 per barrel before settling slightly less bad at negative $37.63 per barrel. [Gulf News]
Physical Delivery
The situation has been turned on its head, due to a one-two punch of waning demand and oil storage facilities at capacity. Considering oil is not something that can easily be stored, oil traders are having to pay to have the oil taken off their hands, so to speak, as Schiff explained.
DoubleLine Capital CEO Jeffrey Gundlach seems to agree with Schiff’s analysis. In a Tweet storm of his own, Gundlach, who is also known as the Bond King, already warned about the “danger” of speculative commodities trading “while unable to take delivery,” adding:
“I spoke about how physical gold is far better that ‘paper gold’ for the opposite but related reason that tanked May WTI today. What if the ‘paper gold’ vehicles wanted to take delivery of their futures
Futures contracts are literally agreements to buy or sell an asset on a future date and for a fixed price.... More and the counter party couldn’t deliver?”
Gundlach has echoed the warning about speculative trading as it relates toBitcoin. After previously describing Bitcoin as the “poster child for social mood and market mood,” he expounded on his opinion in early 2019, saying:
“I don’t recommend anything with bitcoin, really…but if you really want to speculate, I think it could make it to $5,000. Talk about an easy 25 percent.”
As of March 31, Gundlach is “neutral on gold” but it’s unclear if he’s changed his mind on Bitcoin now that it’s trading at $7,000.
Out of the Woods?
The good news for oil is that the WTI May contract is expiring, and the June contract begins trading on April 21, with the price currently hovering at $21 per barrel. But that doesn’t mean the oil patch is out of the woods, as there’s nothing to suggest that the supply/demand situation will change and the same thing won’t happen next month when it comes time for that contract to expire.
If you tweet negative oil price tonite, please remember to tweet the positive price tomorrow. WTI’s May future contracts expires today. June’s futures contract commences tomorrow and the price is about $21/barrel.
— L'bookie?? (@ooyeboade) April 20, 2020
Big Oil Advances
While Schiff revels in gold’s gains today, it’s not the only asset in the green. In fact, while the day brought steep declines for equities, some Big Oil companies actually turned higher in after-hours trading. Companies including Chevron and ExxonMobil advanced in late trading after shedding ground during the normal session.
U.S. crude prices turned negative for the first time ever, trading as low as -$37 per barrel. Our traders break down the action. pic.twitter.com/ZhP8bvEq8T
— CNBC's Fast Money (@CNBCFastMoney) April 20, 2020
According to the traders on CNBC’s Fast Money, the thinking is that while they might not have hit bottom, these Big Oil companies are not going anywhere and will still be standing when the dust settles. The same likely cannot be said for some of the smaller oil and gas exploration and production (E&P) plays, whose hands are basically tied right now from doing their job.
As for gold bug Schiff, he lives to fight another day, and you can rest assured that he no doubt will.
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