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Gold v Oil


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Interesting thing I saw today - historically the price of one ounce of gold has never been able to buy more barrels of oil than now.

 

20160117_oilgold_0.jpg

 

The question is - what is it implying?  The short article mentions that historically (30years), these spikes have always forewarned a global (systemic) crisis of sorts.

 

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Hi ,

 

 

The record high in the gold to oil ratio is mostly down to the fundaments of the oil market. Saudi Arabia wants to force the shale producers out of the market by keeping supply high, and now that sanctions against Iran have been lifted oversupply will keep oil prices down. The collapse in the energy market means customers have reduced outgoings but the deflationary pressure will hold back wage growth. Weak CPI will prevent the Fed from hiking interest rates again, and that will keep the gold to oil ratio high. Prolonged periods of low inflation or deflation is detrimental to an economy, and stocks will suffer as a result. The all-time high in the gold to oil ratio shouldn’t be ignored, but at the same time it is not guarantee of a crisis.

 

David

 

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Hi Guys,

 

I believe a major contributing factor is the lifting of sanctions on Iran.

 

The fight is on between Iran and S.Arabia now to pump out the most Oil.

 

The price is going nowhere while this is on so for the near and medium term the world is going to have a low price to deal with.

 

Other than the Oil Companys this should help with economic growth imo.

 

Just Saying :-)

 

Cheers,

 

JB.

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Hi David  

 

Thanks for that clarification.  I understand what you are saying.

Yet - it could be argued that in the global context for both these commodities, both should be low (meaning the price of gold has held up v oil).  Both being influenced by a common factor ($USD).  Therefore, the extremeness of the ratio is possibly more signficant than not?

Whether it is hinting at a systemic crisis ?  Don't know - yet there is still work to be done post GFC (did Europe really do anything to fix their problems??).  I'd be more confident buying gold at the moment than relying on a recovery in oil to solve everything (not saying you are suggesting that as a fix). 

 

 

 

 

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It's a big bad mess of outside meddling in markets and ironically not meddling in markets. Ie QE and no OPEC.

Oil is in a bizarre state where trading is unconnected to reality because of the oversupply and therefore there's no logical bottom and is a high-stakes game between traders going short and long on the slightest bit of news. Look at the reaction to a hint of ECB QE....shouldn't have been the reason for oil to spike 8%. The systemic crisis is shale, which is now there and recoverable, and the question will be what supply that leads to at any given oil price, once things settle down and the weakest producers have gone bust. It should still be a large amount of supply that could be restarted the minute prices start to rise. There will be longer term effects of all the cuts in exploration but that won't take effect for many years.

Gold however is even more bizarre with hundreds of times more paper gold than the physical stuff. That would get truly interesting if big physical holders started to insist on delivery of their gold. At the moment it's a giant ponzi scheme.

So oil is more understandable/logical but in an oversupplied market it's at the whim of trading which is a giant high stakes poker game.

Gold......is just plain bizarre....but with the Russians and Chinese stockpiling it like never before you'd like to think they have an end-game.....gold backed yuan anyone?

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Hi , , ,

 

The lifting of sanctions against Iran is a major factor, as oversupply is currently a problem and when they come on stream it will only get worse. Demand for oil is still dwindling. As China devalues their currency the issue will be compounded. The extremeness of the ratio (gold/oil) is because of extreme circumstances (1st) the political and financial uncertainty in the eurozone still persists, which is keeping the flight to quality asset (gold) in demand (2nd)Oil is very cheap because over intentional oversupply. Since the Fed seem concerned with the global situation, gold is looking more attractive at the moment.

 

Thanks,

David

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  • 2 weeks later...

Read something interesting today - Barclays has a chart which shows an 18% YoY decline in distillates demand which means it (demand) is at levels only seen during US recessions.

Just a point against the oil price is "an excess supply" issue...?

 

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Hmm, an update too on the gold/oil ratio.  Back in 1893 there was a depression in the US and in 1892 this ratio hit a high of 41.

The current ratio has just broken that record at 44.  The long-term average is about 15. 

 

Edit - Weird - putting a " : " meaning ratio, then oil , you get a weird emoticon - :oil 

 

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