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Wednesday , December 2 2020

Yellow gold overtakes black gold; oil companies and governments short of cash

THE gold price is currently going higher and higher with no sign of abating anytime soon. As long as the world fails to find a cure for COVID-19, the global economy and trading activities will remain static and not move forward under the current state of affairs. Also, the unemployment rate is hitting a global record high, and governments are forced to print paper monies without any tangible backups of any sort .

In the past, it used to be solid 24-carat gold that served as a safe haven for the rich and the poor at the same time. Currently, we all can see that gold is standing firm against currencies that are going down in value, leading eventually to high inflation. Most of the time, gold does not even cover the inflation rate but this time, gold has proved itself in securing a high value with its price increasing by more than 30 percent in less than four months.

Oil prices hit the bottom during the first quarter of this year, falling to less than $20 per barrel, while on speculative bases, it went below zero. This resulted in oil companies and oil producers to run short of cash and opt for borrowing. Also, oil companies ended up reducing their dividends by half, coupled with selling out their assets, reducing their staff and slowly shifting away from oil.

Shortage of cash for oil companies is forcing us to look around and think loudly as to whether the oil countries should move away from black gold towards more alternatives to oil. The time has come, as most oil producing countries, if not all, are in short of cash. Also, countries dependent on oil exporting countries are seeking financial help and assistance.

Hard times are certainly not far away. Few of the oil producing countries can depend on their overseas funds and wealth. This of course will not last long if countries do not curtail the expenses and cut down on foreign manpower. This long-term vision must take place within the coming five years, particularly in the Arabian Gulf countries.

Time has come for us to organize ourselves and concentrate on our economy away from oil. Easy solutions are not available and we have to simply cut down on our expenditures. We must depend on ourselves and make sure new graduates choose employment in sectors other than the government sector.

Of course, gold owners and investors are cashing in and selling their gold at today’s high value. However, they are faced with one question  – Where to invest this gold cash? This is the question that will remain unanswered – selling gold against papers and unknowns.

Do they switch to oil ? Will it hit the high value levels of $100 and above? When and how? The oil companies are minimizing investments in black oil, while oil is still cashable and goes up and down. It might go up higher than the current level of $ 43, but not beyond $60 in the coming few years. We must balance our accounts and our expenses on both short and long terms, for sure. Gold will certainly represent 30 percent of our overall investments.

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