Oil to gold ratio means $1,400 gold is close
Posted on 29 June 2008 with no comments from readers
Gold prices have lagged behind oil’s recent surge above $140 a barrel and are over due to play catch up as the US stock market officially enters bear market territory leaving investors in search of downside protection.
Long term the gold to oil ratio averages around 10, so that means that $1,400 an ounce gold is close as this ratio returns to its normal level. Of course, if oil shoots higher to say $170, as top officials suggest this weekend then gold should follow proportionately higher.
I think some long time precious metals watchers are in danger of missing the big call. It must be hard after so many disappointments over the years. But I am no gold bug or lover of precious metals, just a reader of markets.
That Wall Street is overvalued and heading for a crash is just so blindingly obvious it makes my heartache to listen the bulls. Look at housing, jobs, a recession and the financial sector. The market should be 40% down not 19.9%.
It will get there. On Thursday I noted that only gold shares seemed to be going up while everything else was going down.
Gold has the twin drivers of a catch up with oil and a safe haven asset in a falling stock market, and as a currency hedge against the still falling dollar. For precious metals the time has come – and silver looked strong too.
No wonder the Russian oil funds are looking at precious metal diversification, as reported in yesterday’s Moscow Times. The world and his wife is about to buy into precious metals.
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It’s interesting you are making the link between oil and gold.
Oil is of course being traded on this planet for gold
and the sellers of oil have only the real value of gold in mind,
not the present US dollar-denominated value of gold.
Five years ago, I argued that PAPER-GOLD contracts led to an ever LOWER price of gold.
OPEC is arguing these days that PAPER-OIL contracts are leading to an ever HIGHER price of oil.
Here’s a good example of OPEC’s reasoning
Coming soon: “A Massive decline in oil prices”
http://chartsandnumbers.com/2008/06/29/coming-soon-a-massive-decline-in-oil-prices/
This was my argument five years ago:
The flourishing on the stock market at the end of last century of [derivatives] like options and futures was a symptom of the fact that it this society, which would be our society, most individuals think that from the moment you have a claim to a tangible thing, you possess that thing, even though there is no way in which that debt could by settled by the debtor through a physical transfer of that thing. Translated into gold terms, this means that so-called gold bugs are not interested in the possession of gold as a hedge in case of monetary disorder, but only in concluding wagers over the gold price in order to pocket the monetary surplus value. In that way, the bullion banks, who had learnt their mischievous behaviour from the central banks, came up with a fourth way to lower the price of gold. Knowing that more than 90% of the counter parties would be satisfied with a settlement of the contract in paper money, or the conversion of the obligation of the hedge fund into an obligation in paper money which involves only money and does therefore not influence the demand for physical gold, there just needs to be enough gold available to fulfil the demand of the next real gold buyer. Only to be repeated again and again as the paper system produced another lower value for each new buyer/ owner. Eventually bringing gold to its plateau price today.
( With Chinese Freegold from a reserve currency to a world standard
by Ivo Cerckel
http://www.free-europe.org/blog/english.php?itemid=56
Done on Siquijor, on August 29, 2003)
As I said, I continue to maintain that oil is being traded on this planet for gold
and that the sellers of oil have only the real value of gold in mind, not the present US dollar-denominated value of gold.
Hence I asked, probably ERRONEOUSLY, last week in part on my blog:
1.
Could it be that someone is speculating about that money, the US dollar, being replaced by the Gold Euro?
Could that explain why OPEC, the Organisation of Petroleum Exporting Countries, and the European Union (EU) on Tuesday 24 June 2008 supported more oversight of oil markets?
Why is it then that Jean-Claude Trichet, the European Central Bank (ECB) president, on Wednesday 25 June 2008 rejected the argument of some European politicians that speculators are behind recent sharp rises in world commodity prices?
Nobody will tell us.
2.
Could it be that oil is being traded on this planet for gold
and
that the sellers of oil have only the real value of gold in mind, not the present US dollar-denominated value of gold?
Nobody will tell us.
3.
The sellers would thus be converting their petrodollars to gold.
Could it be that the sellers are speculating with the dollar-regime in order to extend the period during which they will still be able to proceed to this conversion at cheap gold prices?
Nobody will tell us.
And I concluded the paragraph that paragraph in that blog-entry:
4.
The dollar-oil bubble is not yet finished.
It will stop when the Gold Euro will arise.
The Dutch (and Belgian) press reported on Wednesday 25 June 2008 that ECB president Jean-Claude Trichet told in a reply to a question by a Dutch member of the European Parliament that oil will FOR THE MOMENT (“voorlopig”, “provisionally/in the interim”) not yet be priced in euro
( Oil & Money 2008
June 26th, 2008 by Ivo Cerckel
http://bphouse.com/blaze/honest_money/2008/06/26/oil-money-2008 )
Who is erring?
OPEC or me?
Can anybody explain to me
how PAPER-GOLD contracts led to an ever LOWER price of gold,
while PAPER-OIL contracts are at present leading to an ever HIGHER price of oil?
I want to understand this world.
Oil is going to remain high for the forseeable primarily becasue most of the arab gcc & opec members have so much invested in their infrastructurev and they need the money more than ever. An analyst commented that they were thrilled when oil was trading at $18, whats wrong now?. With literally trillions invested in new cities and infrastructure, they need to keep the pace and no loose the oppurtunity to cash in. Oil will come down when the iraqi wells are tapped again in a few months as they have a top 3 reserve after the uae and saudia, coupled with the big 3 car manufacturers shifting their production and strategy to more fuel efficient and hybrid vehicles, its just a matter of when rather than how.
I agree that oil producers look a little hypocritical when talking prices down but they do have an eye to long term markets and want to avoid a crash. Prices certainly will correct but it may take longer than a few months, a few years perhaps – oil infrastructure is slow to build and demand is much quicker to rise at present. Fuel efficient cars have more to do with high prices than the big 3 car makers who are all close to bankruptcy and might get there in a real slump.