Posted on 07/09/2006 6:30:32 PM PDT by DebtAndDelusion
With oil now hitting record highs and gold well off mid-May levels, the gold-oil ratio continues to shrink. Today, one ounce of gold only buys 8.57 barrels of oil - a ratio of 0.11.
Oil hit a fresh record high of $75.78 a barrel today, boosted by strong demand in the United States and global tension ranging from Iran's nuclear work to North Korea's missile tests.
Prices drew early support from a U.S. government report yesterday showing gasoline demand grew by 1.4% in the last four weeks from a year ago, with summer driving months still head. But rebel attacks in Nigeria, the world's eighth-largest oil exporter, have shut almost a quarter of the country's output and the Iranian nuclear row has raised fears of supply cuts from the world’s fourth largest oil exporter.
Oil is up 23% this year on these geopolitical tensions and a flood of investment fund money into commodities, and many analysts are saying high oil is hear to stay. It has rallied from below $20 at the start of 2002.
In the meantime, this year gold soared to a high of $730 per ounce on May 12th, its highest in 26 years. But just as quickly as it sprinted to record highs, the yellow metal plummeted by $190/oz to a low of $542/oz just four weeks later.
Despite gold regaining some of its luster of late, the gold-oil ratio continues to slide. In May, using the average price of gold and oil for the month, the ratio was 9.57 barrels per gold ounce; the ratio averaged 8.4 bbl/oz in June. So far in 2006, the average gold-oil ratio is 8.3 bbl/oz – or around 0.11 gold ounces per barrel of oil
The long-term ratio has averaged about 17 bbl/oz since 1970. So far in 2006, the average ratio has been 8.7 bbl/oz.
Using the 36-year ratio, the “suggested” price for gold is $1,258/oz with oil at $37/bbl. Using the 2006 average, gold comes to $644/oz with oil at $72.9/oz - pretty close to today’s price differential.
Crude for August delivery climbed as high as $75.55 a barrel, to a set a record on the New York Mercantile Exchange for a front-month contract. It then pulled back to a close at $74.09, down $1.05.
Today, gold closed down $1.50 for the day at $634.80/oz on NYMEX. However, it gained 3.1% overall this week on tensions in North Korea and 4.8% last week on buzz that the Fed’s interest rate hike campaign is over.
So gold has gone down some? I think I'll buy some then.
btw, folks, at least in NYS, if you buy at least $1,000 in precious metals, you don't have to pay a tax, because it is considered an investment.
One can use a good putdown to the gold bugs by wishing them "profitable goldbuggery!"
I'm pickin up, what you're layin down!!! Ha Ha Ha!!!
I'll buy the "US demand" argument, but I've never bought into political effects on the price of oil unless the political concern was truly imminent.
Its equally possible oil is overvalued.
"In the meantime, this year gold soared to a high of $730 per ounce on May 12th, its highest in 26 years. But just as quickly as it sprinted to record highs, the yellow metal plummeted by $190/oz to a low of $542/oz just four weeks later."
This makes sense, as the markets first tested the new Fed chairman and he is responding via higher interest rates.
They are taking away the inflationary punch bowl.
As noted, oil is up on specific fears wrt supply and Iran. This is above and beyond the general commodity markets, which IMHO has just peaked for a while.
Oil will line up (ie fall) if and when the Iranian problem gets resolved and/or supply demand gets rebalanced.
JMHO. Warning: I expected oil to fall late last year. It did. then it rose to new heights. So I'm giving up the oil price prognostication business for now.
You probably know this but oil can't be used for this purpose because oil is a useful commodity, unlike Gold which has no useful purpose for the investors.
Gold just happens to be a metal which isn't too useful, but is considered nice-looking, is easy to shape, and has a "history" of being important. That, and it happens that it's discovery rate remarkably matched the economic expansion/population growth.
If someone finds a billion pounds of gold in a new mine somewhere tomorrow, all the "theories" of gold won't protect the holders from disaster.
Conversely, no matter how much gold there is, if some day the child yells "the emperor has no clothes", and people actually believe it, gold will go the way of the beanie baby.
In the meantime, expect to read stories like this, and hear arguments like this, with great regularity. After all, for gold to go up in value, you need to build up demand.
And somehow, even with all the asians "buying up all the gold", we still can purchase it for what is apparently a fire-sale price, according to the hype.
Meanwhile, I've been an adult for about 25 years now, and at no time in my life has gold been a good long-term investment. I could buy my gold class ring today for a FRACTION of what it would have cost me when I graduated, taking into account inflation.
On the other hand, if I had invested all my money in a large storage tank of gasoline, I could retire today.
Whenever I want comedy I'll go to the gold bug message boards. Maybe even Yahoo's Newmont mining message board.
It has and will continue to be the "rock, paper, scissors" economy. Gold beats paper...Oil beats gold...Armies and weapons beat oil and everything else. Those with the army have the paper which beats the gold and can otherwise take what it needs.
On a micro/individual level, those who can squirrel away food, medicine, fuel and have the land and means to store necessities and protect them from being "requisitioned" is how one plays the game of life. So if you live in a condo or apartment sharing floors, ceilings and electric amenities, then you've got trouble.
When your state gets hit with 14 hurricanes in 3 years one begins to think about such possibilities
Never go to bed without the important news:
http://futures.fxstreet.com/Futures/quotes/gci/worldindices.asp
Oh. I've already had mine, thank you. And no banks were harmed in the making of it.
"There's a reason those darn Asians are buying all the gold..."
And on the lighter side of the PTB, GS decreased their gold shorts on the TOCOM.
FWIW, DYODD, I'm buying..
Do you think the elites have hedged their "free trade" bets with substantial gold postilions? Physical gold? Trade deficits of 850 billion are what bring disrespect to the US dollar and will kill it's value. But if the elites own gold they don't care
That's way too simplistic. What will happen with oil exporters such as Iran, Russia, Venezuela is they will demand payment via a currency basket that will be one third US Dollar, one third gold, one third Euro. They will demand this payment from rich countries that will pay full price. For poor countries they will give some a discount and accept barter and raw materials in payment for oil. Their poor friends will get this deal. Other poor nations will not.
IOW if a poor Latino nation wants cheap Venezuelan crude then they have to ally themselves with Hugo Chavez foreign policy
I always thought that was ironic - paying taxes on a real loss but a nominal numbers gain upon resale.
"Dead wrong. Correlated, but weakly: "
Run some regressions, then show me the results.
The oil supply is backed by the US military which must retain overwhelming force.
When the price of oil goes up, the US govt can print more reserve dollars to satisfy world demand. So the US govt wants the price of oil to go up.
Gold is only a hedge, a minor irritation to the US govt who confiscated it in the 1930s.
If you value your gold, bury it.
BUMP
"Tired of the roller coaster of investing in penny stocks. Invest in Gold, a bedrock of stability."
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