If you own oil or gold today, you might be kicking yourself later. At least, that’s according to legendary investor Jim Rogers.
In an interview with The Economic Times last week, the commodity expert warned that oil and gold prices could be heading sharply lower. (Source: ET, last accessed July 13, 2015.)
“I would look for oil to go down back into the lows of 50s or 40s [per barrel] to scare us all,” he explains. “This is what normally happens in the market. They have a big drop, a rebound and then they go back to test the lows.”
Many factors have contributed to the crash of oil prices, but one factor that continues to depress the oil prices is the rising U.S. dollar. The Federal Reserve is expected to lift off the federal funds rate this year. This caused the U.S dollar to appreciate significantly.
Typically, when the dollar appreciates, the oil prices tend to go lower as the oil prices are dominated in the dollar. Therefore, oil becomes more expensive for buyers with other currencies. As a matter of fact, when prices are higher, demand will go down.
Meanwhile, as many economists warn, the Chinese economy is slowing down faster than previously expected. The slowdown in the economy of the second-largest oil consumer will impact oil prices notably.
For the same reasons, Rogers is also bearish on gold. A strong U.S. dollar will make it more expensive for foreigners to buy dollar-denominated bullion. In Rogers’ view, that could send gold prices as low as $950.00 per ounce.
“I do not know if the gold will make its bottom in 2015 too if it goes down another 15 or 20%” he concluded.