1) I believe recent turmoil in the financial markets are economic efforts to keep Russia in check following the annexation of Crimea. This recent foreign exchange volatility has caused a collapse in the Russian Ruble and Euro and a massive run in the US dollar. Remember wars can be fought without bullets utilizing foreign exchange and financial market manipulations.
2) Concurrently, the Saudi’s boosted oil output cutting the price to below $60 a barrel. This could’ve been payback for Russia’s support of Assad’s regime in Syria.
3) U.S. Central Bankers have been cutting back on QE allowing the dollar to rise. A rising dollar and low oil prices is devastating to many emerging resource rich nations such as Russia, Nigeria, Venezuela and even the US and Canadian Oilshale boom.
4) Banks sit on a lot of energy loans and defaults could increase. A potential bond default affecting a major bank is possible leading to further volatility.
Outlook for 2015
Remember that historians show that financial volatility and hyperinflation like what we are seeing in the resource rich emerging nations could usher in extreme radical political parties, regime changes and geopolitical instability.
Gold is hitting record highs in Russia, yet is hitting new lows in dollar terms. Some compare 1933 Germany to today’s Russia. Only time will tell.
Incredibly, gold has held in versus a rapidly declining oil price and the gold to oil ratio is hitting new three year highs. This could be a boom to large tonnage and open pit gold producers where a large portion of their cash costs are based on the oil price. I expect some of the major miners to outperform in the new year factoring the cheaper energy prices.
This could benefit the high quality junior miners with economic assets that could fuel low cost production.
Watch safe haven demand return to precious metals in 2015. Safe haven demand should increase for gold and junior miners in 2015 as the U.S. dollar rally fizzles out due to a Fed reluctant to raise rates. We expect some of the gold resource funds to see inflows of capital in the new year as negative or zero interest rates are prevalent in the West. Even though the Venture has free fallen on what I call the Putin Put on Commodities. I expect savvy investors to come in and finance high quality junior mining opportunities where we could see outsized gains. I follow price volume action during seasonally weak periods to identify savvy accumulation by institutions.