Legend Art Cashin warns panic in this major market will shock the world.
Eric King: “Art, in your last King World News interview you said,
“You want to watch oil carefully. There’s a good chance we are going to retest that
area around $33, and if that breaks it will present a possible
new move to the downside that could be crushing.”
Oil has quickly plunged about 10 percent below that $33 level. How did you know, and where do we go from here?”
Major War In Oil & A Possible Derivative Nightmare?
Art Cashin: “A couple of things are going on: When the Saudis announced that they might do an IPO on Aramco, the big Saudi oil producer, that told traders that the Saudis might be stocking up for a really protracted fight on the oil price. That’s when you saw a lot of bids disappear.
As we talk shortly here in the afternoon, we are just above $30. If the price of oil breaks $30 it could lead to a little bit of cascade selling and that would be a real problem. There are certain derivatives that are triggered when oil breaks certain price levels. It actually brings on more selling in oil as entities are forced to liquidate certain positions.
The thing that I am concerned about is if the price of oil breaks $30, does it lead to a kind of trapdoor, and is there subsequent selling?
Trouble In Saudi Arabia As They Punish American Frackers & Iran
So I would watch what the Saudis do. They obviously can’t cut back on the very extensive benefits they give to their people without having an insurrection. So I think they are looking for ways to raise money so that they can continue to keep oil at a very, very low price in order to punish Iran and to punish the American frackers.”
Eric King: “When we last spoke, Art, you also warned about the oil derivatives and the trigger on a break below $30. As I mentioned earlier, you warned there would be a tumble in the price of oil if it broke $33 and that’s already happening real-time. Now, for the second time, you are sounding the alarm bell that if oil takes out $30 there could be some even more serious selling because of these derivatives.”
Art Cashin: “Well, there is. You just don’t know how big the extent is and how compelled entities will feel to liquidate into a very illiquid market. So it could cause some real problems (in the oil market). but I would advise all readers to watch that $30 level and see if there is or isn’t a trapdoor effect when oil breaches $30.”
Eric King: “Art, the Gold/Oil ratio punched to a 70-year high at 35.06 yesterday, and it’s near 36 as we speak.
70-Year Breakout In Gold vs Oil Ratio!
The Gold/Oil ratio taking out that high from July of 1973 (33.69), what are your thoughts on what is transpiring? Because people will see gold float across the ticker at roughly $1,100 and think it’s weak but it’s actually trading quite strong vs some of these other key commodities such as oil.”
Art Cashin: “And copper and a variety of other commodities — you’re dead right. If you price it in paper money it does look like gold is weak. But if you price gold in goods and other commodities, gold is behaving quite well and it has been a benefit to people who knew how to arbitrage it against other key commodities.”
Eric King: “Art, is that possibly a signal that the 4+ year cyclical bear market in gold is coming to an end and that we may finally be seeing a turn? Because the price of gold is so stubborn and it refuses to drop with these other commodities. Is this a sign that there is hope for gold?”
Art Cashin: “There is (hope for gold). Certainly on the charts it looks good. But my great hope would be if you begin to see some velocity in the money supply — if you begin to see some lending going on in the banking system. Because that will almost instantly bring a whiff of inflation with it and that will light a real bonfire in the gold market.” To hear more on the gold market from the man who advises the most prominent sovereign wealth funds, hedge funds, and institutional funds in the world, Michael Belkin, CLICK HERE OR ON THE IMAGE BELOW. Belkin covers the historic rally he expects in gold and the mining shares as well as what he expects to see in global markets for the rest of 2016.
***ALSO JUST RELEASED: The Case For Gold With The World On The Edge Of Chaos CLICK HERE.
***To listen to the powerful KWN audio interview with Egon von Greyerz CLICK HERE OR ON THE IMAGE BELOW.
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