Latest / Bloomberg Intelligence / S&P's Gunzberg on Brexit: North Sea Oil is Concerning (Audio)

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S&P's Gunzberg on Brexit: North Sea Oil is Concerning (Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day at Bloomberg
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  Speaker 1: This is a Bloomberg Business Flight from Bloomberg World Headquarters.
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  Speaker 1: I'm Charlie Pelt. The Dow, the SMP, NEZ DAK all
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  Speaker 1: plunging today, stocks moving by the most in ten months
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  Speaker 1: to the downside, joining up sell off in global risk
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  Speaker 1: assets on speculation that the UK decision to leave the
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  Speaker 1: European Union will hamper worldwide group growth. We did have
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  Speaker 1: equities fault to session lows in afternoon trading. The down
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  Speaker 1: at one point was down more than six hundred fifty points.
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  Speaker 1: It ends the Friday session with the loss of six
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  Speaker 1: hundred eleven points at seventeen thousand, three hundred ninety nine,
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  Speaker 1: a dropped there of three point four percent. SMP five
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  Speaker 1: hundred in next down seventy six, a drop of three
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  Speaker 1: point six percent, as stacked down four point one percent,
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  Speaker 1: the tenure yield one point five five percent, Gold surging
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  Speaker 1: fifty seven dollars the ounce to you, a gain there
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  Speaker 1: of four and a half percent. Crude oil down five
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  Speaker 1: down to forty nine barrel West Texas Intermediate att seven
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  Speaker 1: sixty two Sterling moving to a thirty year low today
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  Speaker 1: right now, a dollar thirty six fifty eight. Don't forget
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  Speaker 1: to stay with Bloomberg Radio all weekend long for our
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  Speaker 1: continuing coverage of Brexit, including special editions of Bloomberg Surveillance
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  Speaker 1: Saturday and Sunday, beginning at seven am Wall Street Time.
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  Speaker 1: I'm Charlie Pellock. That's a Bloomberg business flash. You're listening
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  Speaker 1: to taking Stock with Kathleen and Pim Box on Bloomberg Radio.
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  Speaker 1: Commodities the future of commodities and hard assets after a
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  Speaker 1: vote by the United Kingdom to lead the European Union.
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  Speaker 1: All right, let's find out what happens. We've got Jody Gunsberg,
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  Speaker 1: Global head of Commodities and Real Assets at SMP Dow
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  Speaker 1: Jones Indicase. Jody, thanks very much for coming in the studio.
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  Speaker 1: First of all, I want to just get your impression
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  Speaker 1: on what you felt when you first learned that the
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  Speaker 1: vote was to leave the European Union, and then tell
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  Speaker 1: us about gold, oil and some of the commodities that
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  Speaker 1: have reacted. I was surprised this morning when I woke
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  Speaker 1: up and saw the results of the vote was actually
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  Speaker 1: to leave. Fundamentally, I don't think it changes much for commodities,
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  Speaker 1: especially in the short term. It's too early to tell.
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  Speaker 1: The basics. Supply and demand doesn't really get impacted by
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  Speaker 1: the Brexit decision. Uh. Commodities are on pace to have
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  Speaker 1: their best quarter since two thousand nine, so those improving
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  Speaker 1: fundamentals don't change. But in the long term it could
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  Speaker 1: be positive if it helps Great Britain's economy and their
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  Speaker 1: GDP growth. And again that's the long term, but I
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  Speaker 1: think it could be positive for them in what way
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  Speaker 1: because as they start supporting some of the other European
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  Speaker 1: nations less and start focusing on their own economics. Um,
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  Speaker 1: it may be better for things like jobs, productions growth.
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  Speaker 1: It could be helping consumer spending, possibly the housing markets.
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  Speaker 1: So when we look at all the economics as they improve,
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  Speaker 1: and then inflation may start to take hold a little
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  Speaker 1: bit and interest rates may rise again one day. All
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  Speaker 1: in the long term, then those are all positives for
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  Speaker 1: commodities demand. I was looking up course, like many people,
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  Speaker 1: at the price of goal today up. Uh. Well, right
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  Speaker 1: now spot gold still trades of four up before and
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  Speaker 1: three quarters of a percent. That's a gain of nearly
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  Speaker 1: sixty dollars announced. We've crossed the thirteen hundred dollar threshold
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  Speaker 1: hundred and sixteen dollars. Does that continue? I think that
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  Speaker 1: there's a high possibility that that can continue again. When
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  Speaker 1: we've looked at the history of the index, UH price
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  Speaker 1: of around eighteen hundred would match the index history, and
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  Speaker 1: we've never seen an event like Brexit before, which could
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  Speaker 1: introduce more volatility, more uncertainty for the market, which typically
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  Speaker 1: helps gold. Gold is a strong diversifier and it performs
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  Speaker 1: well when the stock market doesn't. It's had such a
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  Speaker 1: run though. We had a guest on who as he
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  Speaker 1: was leaving so I won't quote him, said that gold
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  Speaker 1: was over bought. To him, it's in this last leg
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  Speaker 1: of the rally. Is it possible that for a while anyway,
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  Speaker 1: any breaks at headlines that don't suggest this is actually
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  Speaker 1: going to go through that be vulnerable to some kind
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  Speaker 1: of sell off. Gold had quite a decline in We
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  Speaker 1: may remember that it had its biggest drop since one
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  Speaker 1: and it never really rebounded, and it rebounded in the
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  Speaker 1: first quarter of this year from the Chinese stock market volatility,
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  Speaker 1: and then it hasn't really picked up the momentum through
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  Speaker 1: the period of market stability, when other commodities have rallied.
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  Speaker 1: But now that we have this new, newly introduced uncertainty
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  Speaker 1: about Brexit, it may cause investors to be going towards gold.
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  Speaker 1: We saw gold was up quite a bit today and
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  Speaker 1: again gold on average, when the stock market falls, if
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  Speaker 1: it falls about ten percent, then gold gains about three
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  Speaker 1: percent per month. But if it falls more like then
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  Speaker 1: gold gains about six and a half percent per month.
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  Speaker 1: So there's a big upside potential when there's stock market
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  Speaker 1: uncertainty because people like to feel in touch gold, They
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  Speaker 1: feel the safety of gold, they like the flight to safety,
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  Speaker 1: and it's store value as a currency. Well, rather than
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  Speaker 1: just talking about the people that like gold, tell me
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  Speaker 1: about central banks and their relationship to gold, and then
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  Speaker 1: their relationship to the pounds sterling, because it seems as
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  Speaker 1: though you hold things in order to maintain those reserves,
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  Speaker 1: and when the pound sterling falls to one thirty six
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  Speaker 1: against the dollar, you might have to make up that
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  Speaker 1: short hall. Gold is really hard to peg to one
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  Speaker 1: influence in the entire macroeconomic landscape. You really can't point
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  Speaker 1: to inflation, the dollar, interest rates. But the one thing,
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  Speaker 1: if anything, that predicts gold is the central bank buying
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  Speaker 1: and selling, but they always seem to be off on
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  Speaker 1: the timing. They get it wrong. So when the central
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  Speaker 1: banks historically have been selling, that's when gold starts to
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  Speaker 1: go up. And historically when the central banks start buying,
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  Speaker 1: that's when you see gold falling. So, uh, it might
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  Speaker 1: be linked to the dollar, but surprisingly most commodities fall
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  Speaker 1: when the dollar rises, and most commodities rise when the
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  Speaker 1: dollar falls. Gold on average rises no matter what the
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  Speaker 1: dollar does. So what about some other commodities. Copper was
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  Speaker 1: down today. Uh, that's obviously not gold, it's more of
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  Speaker 1: an industrial metal. What are some of the other commodities
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  Speaker 1: you're watching closely? One of the factors right now, that's
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  Speaker 1: impact and commodities the most besides what's going on macroeconomically,
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  Speaker 1: is the season that we're in. Commodities are seasonal. It's
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  Speaker 1: the summertime, and the third quarter is best for commodities.
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  Speaker 1: The commodities that do best in the summertime are the
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  Speaker 1: unladed gasoline that's from the increased driving. The crude oil
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  Speaker 1: does well in summer as the input to unladed gasoline.
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  Speaker 1: Precious metals do well. Gold has its best quarter historically
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  Speaker 1: in the third quarter, and we does very well over
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  Speaker 1: the summer. Now I know that we just had fun
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  Speaker 1: out gate of Oppenheimer on talking about energy and looking
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  Speaker 1: at nimex crew down more than five percent today. Scotland
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  Speaker 1: or currently the United Kingdom a big producer of oil.
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  Speaker 1: Will that change the disposition of their oil wealth? As
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  Speaker 1: I mean, there was even talk about perhaps another referendum
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  Speaker 1: in Scotland for UH for independence from the United Kingdom.
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  Speaker 1: The relationship between Scotland the United Kingdom and where the
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  Speaker 1: oil is produced in the North Sea and how the
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  Speaker 1: prices are transported and priced into the ice exchange in
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  Speaker 1: London is a real concern in this situation because Scotland
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  Speaker 1: and UM and England need to be in agreement in
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  Speaker 1: order to have these prices passing through. And there's been
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  Speaker 1: other issues with Brent oil about Brent oil possibly diminishing
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  Speaker 1: and its reserves adding other oils like African oils into
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  Speaker 1: the price of the contract in order to keep the
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  Speaker 1: contract liquid enough to trade. But this year in the benchmark,
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  Speaker 1: w t I oil actually took over Brent as the
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  Speaker 1: global benchmark was which was a big event. So I
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  Speaker 1: think this is a real concern for how Brent gets
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  Speaker 1: priced and used as a global benchmark uh and and,
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  Speaker 1: speaking of fattal Gate, he said that this Brexit doesn't
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  Speaker 1: mean really no connection with the main factors right now
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  Speaker 1: for oil supply and demand. This drop in supply the
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  Speaker 1: steady demand uh And. In fact, he sees from fifty
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  Speaker 1: dollars in oil gradually ricking its way up to about
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  Speaker 1: sixty bucks a barrel for for night mixed crude, and
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  Speaker 1: then that's it. That If that's all that happens, that
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  Speaker 1: seems like it's certainly a lot better for the producers
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  Speaker 1: so they stay in business, but also very good for consumers.
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  Speaker 1: I don't see any of the US companies changing their
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  Speaker 1: production decisions because of the Brexit outcome, and I also
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  Speaker 1: don't see Saudi Arabia changing their position on oil production
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  Speaker 1: because of the Brexit outcome. If anything, again, the volatility
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  Speaker 1: of oil might pick up in futures market because investors
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  Speaker 1: will feel like it's too risky to put their money
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  Speaker 1: into the futures market. And then what happens is we
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  Speaker 1: may see a crash and open interest. If that happens,
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  Speaker 1: then the suppliers have even more incentive to pull back,
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  Speaker 1: not supply more because the insurance is too expensive. For
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  Speaker 1: them to buy, and as they pull back on the production,
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  Speaker 1: that would support the price and possibly drive oil higher.
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  Speaker 1: I got just to ask you before you go, get
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  Speaker 1: the silver the poor man's gold, because I was looking
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  Speaker 1: at silver made prices. Silver trading at sixteen dollars and
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  Speaker 1: thirty cents an ounce. Now we're talking about seventeen dollars
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  Speaker 1: and more than seventy five cents an ounce. That's a
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  Speaker 1: nearly nine increase. Silver's done better than gold in the
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  Speaker 1: second quarter, and it continues to do well. Both silver
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  Speaker 1: and gold tend to do well in times of market crises.
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  Speaker 1: There's moments where silver outperforms much more than gold. Silver
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  Speaker 1: is more volatile than gold, and on the upside, many
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  Speaker 1: investors feel that there's more potential from silver than there
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  Speaker 1: is from gold. But when real fear sets in, investors
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  Speaker 1: go gold. Jody Gunsberg, thank you so very much for
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  Speaker 1: joining US Global Head of Commodities and Real Assets from
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  Speaker 1: SMP Dow Jones Indusices. I'm Kathleen Hayes Long pin Flox.
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  Speaker 1: We're taken stock on Bloomberg Radio