Global| Oct 20 2006Energy & Gold Prices: Whiffs of Reflation?
by:Tom Moeller
|in:Economy in Brief
Summary
At $58.51 yesterday for a barrel of WTI crude oil, the price has stabilized after falling below $60 early last week. Reflation probably is too strong a word for the likely, prospective path of oil prices, but several factors argue [...]
At $58.51 yesterday for a barrel of WTI crude oil, the price has stabilized after falling below $60 early last week. Reflation probably is too strong a word for the likely, prospective path of oil prices, but several factors argue against a repeat of the near-$20 per barrel price decline that occurred in August.
Demand for petroleum products is firm. The four week average of gasoline demand, according to figures from the U.S. Department of Energy, is running 4% ahead of one year ago despite an 18% rise in gasoline prices to an average $2.67 per gallon so far this year versus an average $2.23 during all of 2005.
The earlier decline in gold has stabilized with prices yesterday rising to $597.25 per ounce. That certainly is down from the May high of $725.00 but a concerted move below $600 has been difficult since early September. 
Natural gas prices recently have backed up to $6.71/mmbtu from the early October low of $4.01. The Edison Electric Institute reports U.S. electricity output has improved to near stability versus last year versus earlier 7-8% y/y declines.
Perhaps these reflation whiffs will prove fleeting. The market for Treasury securities seem to suggest they will as evidenced by the 5-year TIPS spread which has fallen to 2.2% versus a high of 2.7% early this year and the implied forward inflation rate for the next five years is down to 2.47%. Much will depend on the economy's strength and the Fed's response to it.Inflation Persistence in an Era of Well-Anchored Inflation Expectations from the Federal Reserve Bank of San Francisco is available here.
| Weekly Prices | 10/19/06 | 12/30/05 | Y/Y | 2005 | 2004 | 2003 |
|---|---|---|---|---|---|---|
| Light Sweet Crude Oil, WTI (per bbl.) | $58.51 | $61.04 | -4.1% | $58.16 | $41.78 | $32.78 |
| Gold: Handy & Harmon (per Troy Oz.) | $597.25 | $516.00 | 28.6% | $507.40 | $443.40 | $416.25 |
Tom Moeller
AuthorMore in Author Profile »Prior to joining Haver Analytics in 2000, Mr. Moeller worked as the Economist at Chancellor Capital Management from 1985 to 1999. There, he developed comprehensive economic forecasts and interpreted economic data for equity and fixed income portfolio managers. Also at Chancellor, Mr. Moeller worked as an equity analyst and was responsible for researching and rating companies in the economically sensitive automobile and housing industries for investment in Chancellor’s equity portfolio. Prior to joining Chancellor, Mr. Moeller was an Economist at Citibank from 1979 to 1984. He also analyzed pricing behavior in the metals industry for the Council on Wage and Price Stability in Washington, D.C. In 1999, Mr. Moeller received the award for most accurate forecast from the Forecasters' Club of New York. From 1990 to 1992 he was President of the New York Association for Business Economists. Mr. Moeller earned an M.B.A. in Finance from Fordham University, where he graduated in 1987. He holds a Bachelor of Arts in Economics from George Washington University.
More Economy in Brief
