Is the silver futures market about to crack wide open?

Posted on 02 November 2008 with no comments from readers

The silver market has been looking interesting for months, despite the price collapse. Beneath the surface of the recent spot price falls the structure of the market is changing in such a way that a powerful bull market is being set up.

Metal holdings for Barclay’s iShares Silver Trust (SLV) have so overwhelmed selling pressure that the trust has added a total of 68,921,884 ounces of silver to its holdings so far this year, reported Yet late last week the COMEX futures market reportedly held 131,530,256 ounces of silver in its warehouses.

Thus so far in 2008 the leading silver exchange traded fund SLV has added the equivalent of 52.4% of all the silver metal that the COMEX futures market has in its vaults. That surely represents amazing buying pressure at a time when silver prices are in crashing. Something is not right clearly.

False market

Then as comments: “if we consider all of the 95,873 open contracts for silver on the COMEX as of last Tuesday, then we find that the COMEX traders are trading contracts either side, long and short, of 479.4 million ounces of silver but only have 131.5 million ounces behind it.”

Why then have silver prices been falling? That brings us back to the alleged manipulation of the market by two US banks over the summer, now under investigation by the regulator. says: “Exactly two U.S. banks continued to keep their thumb on the COMEX silver market as of October 7 when the silver price had already declined from $19.00 to $11.00 and change in the face of severe physical silver shortages of metal on the street. As of October 7 the two largest commercial banks still held a scandalous 23,308 net short silver contracts when the entire commercial net short position was 29,829 contracts. That’s right, two banks still dominated the small silver futures market with over 78% of all the commercial net short positioning.”

This is not only downright illegal and unfair, it is producing a false market. And in false markets things can change very rapidly. Is it any wonder that metal is now flowing out of the COMEX and into the physical market. SLV investors sense a bargain and are effectively pulling silver stocks out of the futures market where the price is false.

COMEX exit notes that over two million ounces of silver have fled the vaults of the COMEX in just the last five trading days alone. How long before that trickle becomes a flood and the futures market in silver is effectively shut down and the physical spot market takes over?

Expect to see silver prices head to the moon. In the late 1970s it was a bungled price manipulation by the Hunt Brothers that sent silver prices super high, and bust the market for the next two decades. Silver today is trading at around $10 an ounce compared with an average price of $24 an ounce in 1980. What else today costs a fraction of the price 28 years’ ago?

Now it will be a bungled price manipulation by US banks that releases the silver price from its artificially depressed state. Silver bugs have gotten silver hair waiting for this to happen, but it is finally upon us and nothing and nobody can stop it.

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The futures in silver and gold rule statement prices of the commodity markets, the purchase and sale of 5000 troy ounces of silver with high perfection in the COMEX exchange. A good study and  this review will give the contract pricing to go upward or downward based on several factors, while the market for silver futures are opening wide as the precious metal is nearing shortage.

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Jim Rogers is shorting US treasuries

Filed under: Oil Prices, US Stocks, Video — peterjcooper @ 9:41 am

Legendary investor Jim Rogers is shorting the US treasury market. As he explains in this interview a hyper inflationary global economic environment is being created by government fixes. This will turn the current US dollar rally into a rout.

More immediately the big rally in US stocks yesterday happened when the bond market was closed for Columbus Day. Now we should have

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an enormously concentrated sell-off in bonds as a follow through from yesterday’s equity rally – that should be the end of the bubble in bonds.

The time of maximum fear in markets, GCC to recover first?

Filed under: Dubai Property, Gold & Silver, Oil Prices, UAE Stocks, US Stocks — peterjcooper @ 9:52 am

The global economy is heading for a deep recession. That much is clearly being predicted by global capital markets with credit stopped and equities in free fall. But a point of maximum decline will soon be reached. However, I doubt if buying on this particular dip will prove a very good idea.

Dominique Strauss-Kahn, the IMF’s managing director, said yesterday: ‘Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.’

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And he warned global equities could plunge by a further 20 per cent this week unless governments deliver concrete action.

Looking at the G-7 meeting communique yesterday there is little sign of anything ‘concrete’. But there are going to be a lot more ad hoc actions by individual governments and my guess would be another coordinated rate cut.

The problem is that economies are now facing the pain of de-leverage – the reverse of the credit boom that accelerated economic growth. This is happening quite fast but the consequences of the damage will take years to heal in terms of business failures, personal bankruptcies and government budgets.

Rally for suckers

From an investment point of view, I expect a sucker’s rally to occur – perhaps as early as later on this week. But this rally will not hold, and those buying on the dip will be caught out as stocks move even lower. Expect our old friend Warren Buffett to be cheerfully warbling while waiting for a true market bottom. That could take two or three years.

We have a systemic financial crisis. This is very different from the normal business cycle. It also takes a lot longer to correct back again. There are more challenges to come, and not just a spate of bank and hedge fund failures.

How much US paper will global bond markets accept before the low coupon becomes unacceptable? A bond market crash will follow and the US dollar devalue very significantly. Only when the bond market bubble is deflated could markets truly be considered de-leveraged.

Precious metals

By then the only global investment game will be precious metals which is why buying gold and silver continues to make good sense. Nobody has yet appreciated the true depth of what the world has stumbled into but we do have precedents like 1974 and the late 70s.

In the Middle East where I live the scenario that seems most likely is a downturn that will be most dramatic in the off-plan property sector and also shake the banking sector. However, the government will be able to step in once the worst of the real estate shake-out is over, and given that oil prices will be one of the first things to recover this means that the Gulf States could survive the crisis relatively unscathed.

However, all new off-plan property projects will now either be called off or stop due to a lack of sales. The situation for gamblers with a number of part-paid properties and no liquidity is also terminal. Nobody will want to buy part-paid with the obligation to pay further installments in an uncertain market.

Luxury apartments also look an over-supplied market where prices will fall. Agents report this market has frozen, that means price falls will follow.

Oil price outlook good

But what global governments are doing to rescue the world economy is highly inflationary and this is going to have a far more immediate impact on oil and gas prices than in rescuing their bankrupt banking systems. High energy prices drive the GCC economies. Yet we can expect a sharp fall in oil prices as the global recession starts which will send some people into a panic. This will not last for long. Why?

Because inflation will be the unintended economic impact of the global financial bailout. Therefore there will only be a relatively shallow recession in the Gulf States – albeit fatal for overstretched property speculators and many real estate developers. But for those with the capacity to tough it out, this is the place that will recover first from the global recession and still have the best growth prospects for the near future.

My advice is to hold on if you are in Gulf real estate – actually you have no choice as the market became illiquid last week. Blame the world financial crisis if you like or a bubble that obviously had to correct. But if you have over-stretched, over-borrowed or got too greedy then you are in trouble.

Have gold and silver prices reached a tipping point?

Filed under: Gold & Silver, US Stocks — peterjcooper @ 9:47 am

Gold and silver went through a severe correction this summer just like the correction in 1975. Then gold prices dipped by almost 50 per cent from peak to trough.

Since its March all-time high of $1,030 an ounce, gold has completed a perfect 38.3 per cent Fibonacci retracement, bouncing back to current price levels. Silver also followed the Fibonacci sequence, albeit with a deeper 50 per cent fall from March peak to the trough.

It is important therefore to note that price corrections are behind us in precious metals. These were fairly brutal commodity price corrections. But the rebound has been quick in the case of gold and can only be around the corner for silver – the two seldom move out of synch for long.

Tipping point

Now we have to look at the supply and demand position to determine whether this could in fact be a tipping point. The downside after a big correction like we have just seen is clearly small or entirely gone.

Gold first: last week investors queued in the streets of London to buy gold. We have a similar rush in the souks of Dubai. Gold coins are selling at the highest premiums to spot gold price in 30 years, and stocks are running out.

Gold has risen sharply in price this week despite a very sharp rally in the US dollar, lower oil prices and collapsing stock markets. Usually the dollar and gold do not move in the same direction, so this is highly significant. Gold also usually falls with oil.

Bullion premium

In silver the premium paid for bullion bars is up to 50 per cent above the spot price as dealers are running low and demand remains very strong. Why are silver premiums higher than gold: simply because silver stocks are tighter.

This is the classic case of tugging on a piece of elastic fixed to a brick. The pull of the retail price is suddenly going to increase the silver spot price. It just has to as bullion dealers replace their stocks.

We now also have an official enquiry into the shorting of the silver market by two US banks over the summer that crashed the price. No matter that the banks will probably be exonerated. They have removed their short positions – so there is nothing there to prevent silver prices surging ahead.

Supply shrinking

Meanwhile on the supply side things could hardly be better for price rises in precious metals. Central banks are withdrawing planned gold sales while output is falling at the major producers.

Silver stocks have always been tight as unlike gold the metal is consumed by industrial processes; but silver is also a precious metal which tracks gold as ‘the poor man’s’ alternative. Silver production is increasing but only at a snail’s pace.

Will silver prices again outperform gold by a factor of two as they have in the 2000s so far? It is not guaranteed but looks a fair assumption. And once stock markets have ceased to fall silver producers look an excellent buy, as will the junior gold exploration companies.

However, if this is not a tipping point for gold and silver prices then it can only be a matter of weeks or a couple of months until we reach one. Mostly likely this is it!

From the 1975 correction up to 1980 gold prices grew eight-fold and silver 20-fold – and history has a habit of repeating itself. It never is different this time…

Indeed, the highly inflationary bailouts of the banks that we are seeing today are a mirror image of the rescues that occurred after the 1974 stock market crash and the tripling of oil prices in 1973. Oil prices tripled in 12 months to $147 earlier this year. We are watching an old movie here with money supply boosts from the central banks that can have only one effect: higher inflation.

Islamic hedge funds find a way of going short

Filed under: Islamic Finance, UAE Stocks, US Dollar — peterjcooper @ 2:34 pm

Barclays Capital, and the Dubai Multi Commodities Centre Authority, an agency of the Dubai government, today announced the first Shariah compliant hedge funds on the Al Safi Trust platform. This breaks new ground for Islamic investors and opens up an entirely new asset class of alternative investments.

DMCC has committed to seed five commodity hedge fund managers on Al Safi with $50 million each, a total of $250 million, for a Shariah compliant fund of funds product to be offered under the Dubai Shariah Asset Management brand.

The commodity strategies and hedge fund managers approved by DMCC are: Tocqueville Asset Management Gold; Lucas Capital Management LLC Energy/Oil & Gas; Zweig-DiMenna Intl. Managers Natural Resources; Ospraie Management Agriculture; BlackRock, Inc;

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Al Safi is a comprehensive Shariah compliant platform comprised initially of single strategy alternative investment managers with London-listed Shariah Capital as the Shariah advisor and Barclays Capital as prime broker and structured product distributor.

Conventional short selling is unacceptable in Islamic Finance because Shariah Law prohibits an investor from selling something that he does not own. Under Shariah, an investor cannot borrow shares from a brokerage house or bank and sell them in the market for an eventual gain.

Under the guidance and approval of Al Safi’s Shariah Supervisory Board, different mechanics for the transaction have been developed. This process establishes ownership before the sale of the asset to the market. In order to accomplish this, a classical Shariah commercial model, known as the Arboon sale, has been used. Then while the mechanics of the sale may be different, the economics of the transaction are the same as a conventional short sale.

For the hedge fund manager, Al Safi is a turnkey solution that provides portfolio screening and related Shariah solutions for hedge funds which enable managers to operate within Shariah while remaining consistent with their existing investment strategies.

Through the prime brokerage resources of Barclays Capital and with the oversight of Shariah Capital, along with the guidance of the internationally-recognised Shariah scholars comprising its Shariah Supervisory Board, Al Safi tracks each trade and each position of every manager through separately managed accounts in order to ensure Shariah compliance.

In addition to the above commodity fund managers, other long/short equity hedge fund managers available on the Al Safi platform will be announced shortly. The Al Safi platform expects to include a range of alternative investment strategies as well as specialised investment funds.

Gold and silver prices to rocket as inflation grows this summer

Posted on 18 June 2008 with no comments from readers

Inflation is all around us these days, whether buying food, petrol or searching for new accommodation. Interest rates are negative, and no government seems serious about putting rates up as the global economy slows. In this environment only one financial investment class is guaranteed to shine, and that is precious metals.

Unless you seriously believe that the US dollar is about to stage a spontaneous recovery with Fed interest rates at two per cent, then stocking up on gold and silver this summer while prices remain low after the March hiatus, makes excellent sense.

Over the past week precious metals have taken a hit after remarks from Fed chairman Ben Bernanke that he is turning hawkish on inflation. But there is no action to back up this rhetoric in the markets. Do not hold your breath for a rate rise on August 4th. It is not coming anytime soon.

Lest we forget: US unemployment rose 0.5 per cent last month; US home sales and house prices are in free fall, and not expected to bottom for 18 months; high energy prices are dampening consumer spending and axing confidence levels. If Bernanke raised interest rates in this environment Americans would send out a lynching party. More seriously any increase in interest rates would crash the bond and stock markets.

Indeed, it is far more likely that the pressure will come in the other direction, either this autumn or early next year. Bond prices look expensive against surging inflation, while corporate profits are being squeezed by inflation threatening stock valuations. Both the stock and bond markets are set up for a crash, and that would mean lower and not higher interest rates.

Now if interest rates fall, say from the present two per cent to ‘an emergency’ one per cent, then the US dollar will take yet another tumble. Gold is inversely correlated to the greenback – so it will head in the opposite direction, and upwards in value. Silver is the precious sister of gold and will follow and perhaps out perform as it has historically.

There is a seasonal pattern to precious metal prices which has more to do with Indian festivals and their gold buying than the US dollar. That leaves prices weaker over the summer months with a tendency for a strong upward lift in September.

Last summer we saw gold prices trailing around the $650 an ounce mark, and then an autumn price surge from September that took prices to a peak of $1,030 by March. With prices hovering around $870 today that is still an advance of one third in price on a year ago. And with world inflation set on an upward march, and the US dollar poised for further weakness in the near future, the bull market for gold is far from finished.

Oil is far above its previous inflation adjusted, all-time high of 1980 and more than three times its nominal price level in 1980. If gold prices are inflated by the same factor as oil since 1980 then the price of gold is $3,100 per ounce.

Now that is not to say that gold prices are about to surge to $3,100, although in an inflationary environment anything is possible. But this does make predictions of $1,200 this autumn and much higher next year looks very reasonable as investors become increasingly desperate to find a hedge against uncontrolled inflation.

There will also be more and more money pursuing fewer and fewer solid investment opportunities. The global central banks are effectively printing money with low interest rates to offset the deflationary impact of falling house and other asset prices.

This new money searches for a home, and is not necessarily attracted to assets whose valuations and price levels look uncertain. The money will go where it is most likely to earn a return, and precious metals with their comparatively fixed supply will rise in value as the supply of paper money grows, creating a virtuous investment cycle.

But precious metals do not go up in a straight line. There is considerable volatility along the way. That is why buying cheaply during a temporary lull in metal prices is such a good idea. It worked last summer, why not this summer?

And do not get so mesmerized by gold that you forget about silver. In the late 1970s it was silver that delivered the biggest price rise of all when the Hunt brothers formed a pool with Middle Eastern partners to corner the market.

Only last week the Hunt family sold its privately owned Hunt Petroleum business for $4.2 billion leading to some speculation about how the family might decide to invest its new fortune. History does tend to repeat itself, and precisely the same arguments that first took the Hunts into the silver market at $3 an ounce in 1973 apply now. When their pool crashed in 1980 silver was $54 an ounce.

If silver is inflated by the same factor as oil since 1980 then the price is $194 per ounce, a considerable increase on under $17 today. And silver is the only commodity not to have passed its previous all-time high in the current commodities boom. Perhaps the Hunt family will prove once bitten and twice shy, but to invest in silver in present market conditions would appear shrewd.

The demand for the yellow metal is at an all time high and as Charles Dickens summed up, it was the best times, the worst times, the spring of hope and the winter of despair, learn here for how the inflation is keeping the prices of gold and silver at high priced metals.

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Will the Hunts buy silver again after selling Hunt Petroleum?

Filed under: US stocks, gold — peterjcooper @ 3:59 pm

This week XTO Energy finally agreed to buy Hunt Petroleum for $4.2 billion after a long legal tussle between Hunt family heirs. The firm was founded by the late billionaire HL Hunt whose sons Nelson Bunker Hunt and William Herbert Hunt once cornered the world silver market in the 1970s.

Hunt is a privately held company which makes no public comment on its affairs. But commentators think the Hunts are calling the top of the oil market and that the price for Hunt Petroleum suggests a quick deal was the objective.

However, market watchers are bound to wonder if the Hunts are planning to re-enter the silver market which they so dramatically dominated in the 1970s.

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It was in 1973 that the family first decided to buy precious metals to hedge against inflation, much as many rich investors are doing today.

Together with several wealthy investors the Hunts formed a silver pool and by 1979 held half the world’s deliverable silver supply, some 200 million ounces. Having effectively cornered the markets, the pool used leverage to drive the price of silver to $54 an ounce. But the authorities changed the rules on margin trading and crashed the market. The Hunt brothers eventually declared bankruptcy and by 1987 their liabilities of $2.5 billion exceeded assets of $1.5 billion.

After that experience you would have to have a pretty thick skin to try playing the same game again. But history does have a habit of repeating itself, and you have to wonder what investment options are open to a family with $4.2 billion to tuck away in present markets.

Precious metals are once again an attractive diversification strategy at a time of high and mounting inflation. Nothing erodes the value of cash deposits like inflation. The ever secretive Hunts could learn from their past mistakes and avoid margin trading, and still take a commanding position in the silver market, although this sum is too small to impact much on gold.

Of course, the irony of the 1970’s episode may not have been lost on the next generation of Hunts. They did indeed select one of the best possible investment strategies for that decade, and if they had not gotten too greedy with margin trading their position would have been unassailable.

So personally I would imagine the Hunts might well venture back into precious metals, and probably in a big way. But don’t expect to read any announcements or for the family to get carried away trying to corner the market again.

How high could silver go? We are still a long way shy of the $54 an ounce high of 1980 reached courtesy of the Hunt pool, and every other commodity is now past its previous all-time high. The silver market is a relatively tight and small one, so any renewal of serious investor interest, perhaps on the back of another bull run for gold is likely to take prices far higher.

An inflation adjusted all-time peak silver price would be $120 on simple adjustment to the consumer price index and much higher if related to the money supply increase over 28 years. Could the Hunts again invest in the most undervalued commodity in the world to beat inflation? They would be foolish not to!

Peter Cooper


Peter CooperPeter J Cooper is a freelance financial journalist based in the Dubai Media City, and a former partner in the Middle East’s best-read English language website  He is also a columnist for the new UAE business newspaper.

With more than two decades of business journalism and a specialist knowledge of Middle East business and finance, he offers a different perspective on investment from an Arabian viewpoint.

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Mr. Cooper spent a decade in London as a business journalist specializing in construction and real estate from 1984-95, and then moved to Dubai as the launch editor of Gulf Business, the first-ever business magazine in the Gulf. He is also the author of ‘Building Relationships: The History of Bovis 1885-2000′.

As an investor Mr. Cooper has made only a few significant moves: buying Docklands property in 1993 and selling out in 1998; starting a dot-com company in Dubai in 2000 which later merged with AME Info; and being an early buyer of Dubai property in 2002. He is currently invested in gold and precious metals, and a minority shareholder in Linux Gold which owns claims next to existing large gold mines.

Mr. Cooper holds a Master of Arts degree in Politics, Philosophy and Economics from Trinity College, Oxford University, and studied French at institutes in Tour and La Rochelle before becoming an administrative trainee in the European Commission in Brussels where he specialized in development economics.

How to make the biggest profits from gold and silver

Filed under: Gold & Silver — peterjcooper @ 11:00 am

Investors are being won over to the case for precious metals on a daily basis, and the case against this asset class is also weakening by the day. Time then to consider how to gear up to achieve maximum returns in this asset class, albeit with higher risk.

With the UK’s second largest bank, Royal Bank of Scotland predicting a stock market and credit crash within the next three months, it is hardly surprising that the bank’s latest fund for expatriates has a heavy weighting for gold. The ongoing geopolitical tensions between Israel and Iran are also reason enough for nervous investors to seek refuge in this traditional safe haven asset.

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Royal Bank of Scotland has given gold a 25 per cent weighting in its latest Autopilot capital guaranteed deposit account targeted at UAE expatriate customers. Performance is weighted equally across four sectors: emerging equities, developed equities, property and gold. The new fund will track performance of the four sectors when rising, and divert to cash when a falling trend is identified, so gold could be its sole investment class.

The role of gold in this new account is bound to raise eyebrows and comes as the bank is warning customers to expect turmoil in equity and credit markets over the next three months, an unusal statement for the second largest UK bank. Time indeed for UAE investors to consider a little diversification into precious metals.

This column has recently presented quite a detailed case for investment in gold and silver both on the grounds of the supply and demand imbalance in the market, and because speculative interest is likely to build in an increasingly inflationary global economic environment.

Buying bullion or coins and storing them is one approach. But what if investors want to gear up to achieve maximum leverage against the price movements that seem highly likely in gold and even more so in silver?

The most obvious vehicle is a futures contract. The Dubai Gold & Commodities Exchange has contracts available for gold and silver. They are intended primarily for jewelry manufacturers for hedging price movements but they are equally useful if you want to achieve a considerable level of exposure to precious metals without having to come up with more than a down payment.

The problem with options – when you are not using them to hedge against physical metal actually being delivered on a particular date – is that timing is crucial and very difficult. If you get the timing wrong by as much as a few hours an option can expire worthless, and you will lose the entire deposit.

This is why some professional investors in precious metals choose to avoid options altogether, and instead plump for buying the most risky class of shares in the sector: the junior exploration companies.

These companies are sometimes unjustly likened to dot-com stocks. It is true that the juniors raise and burn cash while they look for gold. But unlike the dot-coms they do actually own valuable assets in the form of exploration concessions. Such land claims will rise exponentially in value during a precioius metals boom, particularly if they are well located, for example near to existing operational mines.

The argument for buying juniors is the same as buying land during a property boom: the value of land claims will soar as a boom takes off. After 1978 in the last great gold boom junior exploration stocks jumped in value with 100 and 1,000 fold increases, and even the firms with the worst claims in poor locations did well.

Creating a portfolio of junior exploration stocks, with a basket of top stock picks, is a sensible approach rather than concentrating into one company. Then if a few turn out to be real duds then the performance of the rest should still deliver a handsome return. There are many specialist websites on the Internet offering good advice on junior exploration stocks, such as and

Another approach to leveraging precious metal prices is to gear up on what should be the outperformance of silver versus gold. So far in the 2000s silver has kept up its tradtional outperformance in a bull market, delivering twice the price appreciation of gold, albeit with greater volatility. This greater performance is a gift for the clever investor in precious metals.

Shares in pure-play silver companies should deliver an even higher performance than the metal itself. It is not hard to see why. Silver producers have relatively fixed production costs so if silver prices rocket then their profits will rise by an even higher percentage. Hence the share price is leveraged to the price of silver.

Again the smallest silver exploration companies may deliver the best absolute returns. But there are some very large pure-play silver companies like Hecla, Pan American Silver, Silver Corp and Silver Wheaton that offer strong leverage to the silver price without the additional risk of a smaller company. For more information there are specialists websites like and which can offer more detailed advice on silver.

To conclude, UAE investors looking for an aggressive portfolio in precious metals with maximum leverage to price changes should be looking beyond bullion and coins, and towards investments in junior exploration companies and pure-play silver producers. In the final stages of this boom in gold and silver this is where the best returns will come just as in the late 1970s.

S&P reckons oil market not like the 70s but good for gold

Filed under: US stocks, gold — peterjcooper @ 3:59 pm

Today I caught up with Standard & Poor’s VP for commodities, Eric W, Kolts who was over from New York speaking at a conference in Dubai. He is resolutely bullish on oil prices, and rejected my comparison to the 70s.

‘I can remember what happened then personally and it was not the same. The 70s oil price spikes, and there were two big ones were caused by political interference in the marketplace, not the fundamentals of supply and demand.’

Mr. Kolts is of the opinion that the oil market has undergone a structural shift with demand way out of line with the capacity of existing installed infrastructure to deliver supply. This is very different from political interference –

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the Arab oil embargo of 1973 or the Iranian revolution in 1979 – and makes a correction in price far more difficult.

‘We have seen forward oil prices move up by an unprecedented $45 since the beginning of the year,’ he says. ‘Of course there is a speculative element but this is also the start of including the cost of new infrastructure in the oil price. It is a structural shift and if you are going to tap oil offshore in a place like Brazil this is necessary to pay the cost of extraction.’

On the demand side Mr. Kolts is convinced that the tripling of the GDP of China and India since the year 2000 has also produced a permanent increase in demand for oil as China’s one million new car owners a year are not about to go back to their bicycles. Yet the oil market is still puzzling.

‘We have seen the open position in WTI crude declining since July 2007 which implies short position covering and should be producing a decline in the price,’ he says. ‘But it looks as if over-the-counter trading is more than compensating with prices rising further out.

‘I think oil prices will prove far more resilient in this climate and that we are in a super bull market due to the long-term fundamentals of emerging markets which have now emerged.’

At the same time Mr. Kolts believes petrodollars will find their way into gold as a dollar hedge with silver ‘riding on the coat-tails’ of gold. ‘The Middle East and Russia were always the big buyers of precious metals when I was a trader in the 1980s and this is of course a hedge against inflation and a declining dollar.’

But clearly S&P’s top commodities analyst does not see the oil boom fading away anytime soon because of market fundamentals. ‘That would take a very deep and long US recession,’ he concludes. Interestingly Mr. Kolts is very bearish on the outlook for US equities.