Oil

Global crude oil prices have been rising sharply recently, fueling fears that they will spiral out of control. There are even forecasts that crude prices may soar to more than $80 a barrel if the global economy picks up during the second half of this year, while speculators flock to the commodities market to make quick profits.

International crude prices, which surged to $140 a barrel in July of last year, have plummeted due to the global economic slump and stabilized to $30 to $40 per barrel last month. But starting early this month, oil prices have risen past the $50 level per barrel. As of March 24, Dubai crude prices stood at $50.22 a barrel, while Texas crude was $53.52. The main reasons behind this surge are expectations of global economic recovery, a recent bounce in stock markets, and increased demand for crude due to a weaker dollar.

In the New York market, oil prices touched a four month high over $54 a barrel. The rise in oil prices extended a more than 40 per cent climb since mid-February and came as US equities markets rose on data showing a rebound in durable goods and new home sales and a better than expected fourth quarter GDP.

Another factor driving crude prices higher was the massive economic stimulus announcements by the US government, including the purchases of $300 billion in treasury bonds and plans to mop up $1 trillion worth of insolvent assets. As the dollar weakened against other major currencies on inflationary fears, investors are also turning their attention to the international spot markets, including the oil markets.

A fortnight back Opec ministers decided not to directly cut oil output in an effort to raise prices, but to focus instead on stopping individual members from producing above their quotas.

Instead, the Organisation of the Petroleum Exporting Countries said it would press its 12 members to “comply fully” with earlier agreements to curb crude output. After dropping from a high of $147 last summer to a low of $33 a barrel in December, oil prices have stabilised in the range of $40 to $50 a barrel.

While some countries favored a tougher line in order to fill their depleted coffers, Opec's biggest producer, Saudi Arabia, found support from other moderate nations that believed the global economy remained vulnerable, and that higher crude prices could jeopardise an eventual recovery.

Since September, Opec has agreed to trim its output by a total of 4.2 million barrels a day. According to an estimate, the cartel has achieved about 80 per cent of these reductions, a remarkably high level of cooperation at a time of crisis.

The cartel decided it would meet again in May to consider whether more production cuts were needed, giving members who have not stuck to the quotas more time to comply.

For Opec, this is the toughest environment it has faced since oil prices collapsed in the late 1990s. Energy consumption is falling in both industrialised nations like the United States and developing countries like China, which had been the principal engine of new growth over the past decade.

Global oil demand is expected to drop by 1.2 million barrels a day, or 1.5 per cent, to 84.4 million barrels a day in 2009, according to the International Energy Agency. Last year's drop of 300,000 barrels a day was the first such decline since 1983.

Gold

Barclays Capital (BARC.L) lifted its gold price forecast for 2009 to $940 an ounce from $920, citing the prospect of a weaker dollar and fears about inflation. Plans for further quantitative easing by the United States has seen the dollar nosedive. In that environment, gold will shine, and we have revised our price forecast higher, said the bank.

Gold has risen sharply since the Federal Reserve announced it would buy $300 billion in longer-dated treasures as fears over dollar weakness and rising inflation boosted prices. The bank said it expects prices to rise to $905 an ounce in the second quarter from $872 in the first, to $950 in the third quarter and to $980 in the last three months of the year.

The bank also raised its silver price forecast for the full year to $13.20 an ounce from $11.80, and raised its platinum price view to $1,090 an ounce from $1,020. It raised its palladium forecast of $213 an ounce from $210.

US bank Goldman Sachs has cut its gold price forecast to $930 an ounce in the next six months because of an expected reduction in buying by gold-backed exchange-traded funds. In February, Goldman raised its gold price forecast to $950 an ounce in the next 6 months. Goldman expects gold prices to rise to $962 an ounce on a 12 month horizon.

Holdings of gold ETFs surged in recent months as equity prices crashed and worries over the economy persist, spurring demand for bullion as a safe haven asset.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings rose to 1,124.99 tonnes as of March 24.

Gold prices may surpass a record set in 2008 on a 21 per cent surge in investor demand this year, CPM Group said.

Investment demand for gold will rise to an all-time high of 52.3 million ounces this year, New York-based commodity-researcher CPM said in its annual outlook report. That compares with 43.3 million ounces in 2008. December for gold to make jewelry will drop 7.1 per cent to 56.5 million ounces as consumer spending weakens, the group said.

Gold prices have gained for eight straight years as a declining dollar and instability in financial markets boosted the metal's appeal as an alternative asset. The price touched a record $1,033.90 on March 17, 2008.

Gains for the metal will continue this year as investors seek a durable haven from uncertainty. The US Japan and Europe are in the first simultaneous recessions since World War-II. The Standard & Poor's 500 Index tumbled 38 per cent last year, the most since 1937. In the 2008 fourth quarter, US household wealth plunged 18 per cent from 2007, erasing $11.2 trillion in value, the Federal Reserve reported on March 12.

When the International Monetary Fund (IMF) decided to sell 400 tonnes of gold, it sent shockwaves across the global bullion market.

Analysts feared the gold prices will crash and the IMF gold will play a crucial role in bringing down the yellow metals prices, which, after crossing $1,000 per ounce in the recent past, were ruling above $900 per ounce levels.

But, the IMF had assured all the central banks in the world that it will coordinate with them before selling its gold in phases to reduce the impact on the prices in the market.

But, it is not IMF's decision which is going to impact the gold market. Central banks all over the world are the culprits who cause a rise or fall in gold markets. Because, they are the biggest holders of gold in the world.

According to World Gold Council data, the main central banks in the world possess around 15 per cent of the gold stocks in the world.

And, at a time when the gold prices are soaring and its status as a safe haven investment is rising, central banks are planning to hold back their stocks. This move will further reduce the supply of the yellow metal in the market and may cause further rise in prices.

The central banks' move to reduce their sales or lending of their bullion reserves this year will restrict supplies. The total gold production in the world is unlikely to change much this year as the mining companies have just started efforts to increase their production after the recession caused the prices to surge.

Market analysts think that total sales from major central banks such as France and Switzerland will decline again this year. One estimate projects sales could tumble to their lowest level in at least a decade.

Fewer sales mean gold supplies, which have been retreating in recent years as mining production has weakened, are likely to keep falling short of demand.

Falling central bank sales have been a part of the gradual improvement in the overall balance between demand and supply in the gold market, said World Gold Council.

The IMF's plan could provide a boost in getting central banks to extend an agreement expiring in September to limit how much gold they will sell every year. That deal, called the Central Bank Gold Agreement, has helped restrain central bank gold supplies over the past decade.