There’s a relationship between gold and oil that’s worth understanding because each, being valued in U.S. dollars, putatively serves as a measure of inflation and, since both commodities have a common denominator, it’s easy to price one against the other. Ergo, the gold/oil ratio i.e. the price of gold expressed in barrels of crude, and the current gold/oil ratio begs the question: “Is gold getting pricey or is oil too cheap?
The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the FREE Market Intelligence Report newsletter (register here; sample here). This paragraph must be included in any article re-posting to avoid copyright infringement.
- In the summer of 2008, for example, oil headed to record heights tamping down the multiple to 6x.
- Just nine months later, the ratio rocketed above 27-to-1 and, then, a fall back to the historic average.
- A look at the current gold/oil ratio in the chart below…shows our first foray above the 15-to-1 average in over a year.
That roller coaster ride provided savvy-and nervy-traders several profit opportunities. There is, for example, a spread recognized between Comex gold and cash-settled Nymex oil futures contracts. In one trade, one could have bought gold and sold oil to ride the ratio skyward, then flipped the trade over to surf the ensuing plunge. Less adventurous bettors could have used exchange-traded funds and notes in their securities accounts.
Why bring this up now? Hindsight is always 20/20 and forecasts…tend to be murky, but a look at the current gold/oil ratio in Chart 1 above…shows our first foray above the 15-to-1 average in over a year.
That leads us to two questions:
- Is gold getting pricey or
- is oil too cheap?
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://seekingalpha.com/article/2712665-gold-too-pricey-or-oil-too-cheap?ifp=0 (© 2014 Seeking Alpha)
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