Armageddon in Oil and Gold? 2008 Going Out With a Bang Edition

This morning, we are seeing gold build on its sizeable gains from last week, and oil is up as well. The reason for the move in oil is simple: The explosive conflict in the Middle East is acting as a catalyst on an oil market that was already deeply oversold.

Here is some of the news driving oil this morning ...

Oil jumps above $40 on Gaza conflict: Tensions generated by a widening conflict between Israel and Palestinian militants sent crude prices up sharply to above $40 a barrel Monday, with gasoline and heating oil also making sizable gains.

Defense Minister Ehud Barak said Israel is fighting a “war to the death” with Hamas, the group that controls Gaza. Prices also advanced as China, the world’s second-biggest energy consumer, said it will supplement its emergency oil stockpiles while prices are low, and the United Arab Emirates announced compliance with OPEC production cuts agreed on this month. Prices also were supported by indications that other key OPEC members were acting on commitments to cut back production, in line with a decision earlier this month to take a daily 2.2 million barrels off the market.

And yet, just remember, there is bearish news as well ...

Deutsche Bank: Demand for oil will fall by largest margin in 25 years Global demand for oil in 2009 will fall by the largest amount for 25 years, according to the chief energy economist of Deutsche Bank. Adam Sieminski said oil prices could hit a low of $30 a barrel next year, a fall of a quarter from today's price, because of the sickly global economy. He forecast an average price of $47.5 for the whole year for oil traded in New York. Deutsche Bank predicts global demand will contract by 1 per cent, or 1 million barrels a day, three times the fall seen this year and the biggest since 1983.

In a related matter, Chicago Tribune reports that falling oil prices endanger alternative energy. Well, duh. Don't worry, though. Despite the dire warning from Deutsche Bank, I don't think oil prices will stay too low for too long.

Now, on to gold ...

Gold Rises in London to 2-Month High on Middle East Fighting, Inflation Gold rose to a two-month high in London as fighting in the Middle East and higher oil prices spurred demand for the metal as a haven and a hedge against inflation. The morning “fixing” used by miners to sell metal gained the most since at least 1984.

Here are three gold charts I think you should see -- daily, weekly and monthly charts of gold.

IN OTHER NEWS ...

Do you think the Crash of '29 was bad? Then you don't know about the Panic of 1873. I'm writing about that for this week's MoneyandMarkets.com column. I'm also writing about Baron Nathan Rothschild, of "Buy when there is blood in the streets" fame. He made that comment in 1871, which was part of the Panic of 1873. The Panic started in 1869 (1873 was just the worst year) and the economic depression associated with it lasted until 1879. Ouch!

Wall St. faces record losses in last week of 2008
Investors are preparing to close out the last three trading days of 2008 with Wall Street's worst performance since Herbert Hoover was president. The ongoing recession and global economic shock pummeled stocks this year, with the Dow Jones industrial average slumping 36.2 percent. That's the biggest drop since 1931 when the Great Depression sent stocks reeling 40.6 percent.


More bad news: U.S. Corporate Profits Probably Fell for Sixth Quarter as Spending Plunged U.S. corporate earnings probably fell for a sixth-straight quarter, the longest streak in at least 20 years, as consumer spending on automobiles, homes and retailers collapsed.

Want to see something really scary? Click through to the Grandfather Economic Report series.

I like The Retroist because I'm old.

Marketwatch gives its "10 Investment Ideas for 2009." See if you agree. Meanwhile, Motley Fool likes small caps now. Remember, small-cap stocks historically outperform the market in the month of January (for the simple reason that January is when money managers are most disposed to take on risk).

There are some great new cars coming in 2009, as long as auto manufacturers can survive long enough to get them to us.

The global recession is playing out in China.

Check out my new gold and energy blog at MoneyAndMarkets.com