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Admin

If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.

The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.

The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn.

Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna…

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Admin

Swiss Referendum. A Wrench In The Works For Whom

As polls continue to swing around ahead of the Swiss gold referendum on 30th November, we expect increased volatility in the FX and gold market.  After the implementation of the EURCHF floor, gold’s share of the SNB balance sheet has fallen to 7.5% from around 30% in 2007 (top chart).  The SNB has already pointed out the untenable nature of the peg should the referendum pass, but the impact on the gold market would also be significant.  Taking the current balance sheet of 522bn CHF and spot gold prices, the requirement to hold at least 20% of assets in gold would necessitate buying 1,800 tonnes of gold over 5 years.  Total global production in 2013 was 2,982 tonnes, thus the SNB would need to buy at least 10% of the annual production every year for the next 5 years.

The bottom chart shows the latest composition of the SNB’s FX…

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