High-flying oil and gold markets are in no danger of a collapse anytime soon, sitting on a bedrock of support fuelled by the Middle East conflict, Iran's nuclear ambitions and global growth, analysts said on Tuesday.
In fact, the analysts expect oil prices to hit a whopping $100 a barrel by November, which could translate to US gasoline prices of $4.50 to $5 a gallon, if the Middle East tension explodes and if there are more disruptions to global supply.
"There has to be a major breakthrough in several of these geopolitical fronts for crude oil to lose some of its security premium, and I don't see that happening anytime soon," said analyst John Kilduff of brokerage firm Fimat USA LLC.
Kilduff, senior vice president of Fimat's Energy Risk Management Group, was speaking at a panel discussion on the market outlook for primary commodities like oil, gold and grains at the Chicago Board of Trade.
He said that, even if dramatic successes in diplomacy ended long-standing conflicts in the Middle East, resolved controversy over Iran's nuclear activities and high oil prices slowed global economic growth, thus cutting demand, crude oil prices would fall "no lower than a base price of $45 a barrel."
That price would still be markedly higher than the $16.17 a barrel in 2001, Kilduff said. Since 2001, oil prices have soared about 500 percent. Oil prices at the New York Mercantile Exchange were above $75 a barrel on Tuesday.
Kilduff said prices were also being supported by growing global demand for oil led by China and India, the loss of some production in the US Gulf Coast after last year's hurricanes and supply disruptions in major exporter Nigeria.
The geopolitical concerns, expectations for China to raise its gold reserves and growing demand from India were expected to lift prices of gold to $825-$850 an ounce this year, said Charles Nedoss, senior account manager at Peak Trading Group.
He said the flow of new money into gold as investment funds diversified holdings in recent years had bolstered prices, which are up about 25 percent this year.
"Growth in China and India has also fuelled huge demand," he said, adding that the increase in oil prices has been a "key driver in the price discovery of gold" because oil was being viewed as a "proxy for inflation."
Gold traditionally has been considered a natural hedge against inflation.
"With the situation in Iraq, Iran and the Israel-Lebanon conflict, the premium in gold is going to keep expanding," Nedoss said, citing a "fear factor" as fuelling the gains.
US gold prices tumbled on Tuesday as investors cashed in profits after Monday's rise to seven-week highs. US gold was trading at $634.00 an ounce, down $17.90.
Dan Basse, president of research firm AgResource Co, said he was expecting corn prices to hit $4 a bushel in 12 to 16 months, due in part to burgeoning demand from ethanol plants and depending on the size of this year's US crop.
"This biofuel revolution could end up in a food fight between the food industry and the fuel industry," he said, referring to the use of corn for food and fuel.