Oil prices appear fallen back to almost $60/barrel, which is support based on the long term uptrend that started life in early 1999. Since that time oil prices rose 1400%. Having gone from oversold to overbought, you might wonder whether they are going back to oversold. Well I would suggest they are, but not in any currency measure you will fathom. The goal posts will keep shifting.

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Andrew Sheldon www.sheldonthinks.com

Gold-oil ratio suggests gold prices going to double

Another historic indicator of gold and oil prices is the gold-oil ratio. Basically this ratio measures the amount of gold that one could buy with a barrel of oil, or vice versa.
We can see that the ratio is currently 10, though in the past its been on a trend which would see it valued at 20 at least. This chart is interesting because it poses more questions than it answers. Note that it extends back 170 years, back to the time when they started producing oil. If we accept that the ratio is going to 20 (and that is conservative), then we are looking at oil prices of $30/barrel or gold prices of around $1500/oz. Of course there could be some comprise on both commodities, or the central banks can play with their funny money more, so that in nominal terms both commodities rise. It will not change anything, gold will out-perform energy by a factor of 2:1 for this trend to stay true. I don't see oil prices weakening any further, but I will take a look at oil prices to convince myself.

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Andrew Sheldon www.sheldonthinks.com

Latest gold price outlook - Oct 2008

This is my latest revised price forecast for the gold price in $US terms based on the historically important Dow-gold price ratio. This index has a history extending back 110 years, and it shows a nice correlation with the Dow Jones Index.




There is of course a reason why the gold price has an inverse correlation with the Dow Jones. Gold is a real asset, and the Dow Jones is an index of real assets (i.e. companies) measures in terms of paper currency. The price of those assets in terms of paper depends ultimately on how much paper is created to support nominal asset prices. Asset prices are currently falling. I believe that the Dow Jones will find support aroung 7500 points, from which point it is likely to recover. Looking at the chart, its apparent that the Dow-gold ratio is repeating a cycle that occurred in the 1920s, the 1960s and now the 2000s. On the last 2 occasions, periods of excess money creating were followed by events which saw the Dow-gold price ratio fall to a value of 4. Assuming that the Dow finds support at 7500, we are looking at a gold price of $1875/oz. But of course the USD will have little value in future, so expect real assets like the Dow index to far exceed these values in USD terms. Its not so much that these asset prices are going down, but that the USD is going to be debased out of existence. The implication is that the Dow and gold price could go far higher still.
This story looks like a conspiracy theory, but on reflection it makes a lot of sense. The naive might believe that this market crisis was sudden and unexpected, but if you had been reading about the role of gold and money in the economy for the last decade, you would know that we have been looking at a crisis for some time. I learned this about a decade ago, though it took me some time to appreciate what would ultimately cause the crisis. If a great many investors knew, you can be sure the US government knows. Afterall they wanted to benefit from it. It might actually be more sordid than you think. Its possible than the US government intentionally borrowed and funded the US deficit with debasing USD with the intent of defaulting or paying them back in worthless paper. Financially cunning to be sure, but not the best policy in global diplomacy. Maybe the US government wants a war with China before they get to powerful. Anyway read up on this claim that the USA is already minting a new USD. To my mind China is involved in this policy because it has benefited from 2 decades of unprecedented industrial expansion. It has brought them closer to the USA, not further apart. Its 2 fascist states looking themselves in the mirror. See http://video.google.com/videoplay?docid=1954933468700958565&hl=es. The story seems far-fetched, but consider that if you were going to debase a current (USD) as the government has been doing, then you would have a plan for overcoming the problem. It makes you wonder why George didn't have a plan for Osama or Katrina. Maybe those issues were not the real issues. When it comes to politics, you have to question everything. These smart-arses really twist perceptions. Its enough to make one turn to conspiracy theories for ones daily news.

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Andrew Sheldon www.sheldonthinks.com

The gold price has fallen back to support levels, though can expect equities to fall further. This however does provide an opportunity for an entry into gold options and bullion.
We can see from the chart that gold has reached the $690/oz support and recovered to the $730s.
Gold in Euro terms is also near support.

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Andrew Sheldon www.sheldonthinks.com

Silver prices reach support

Remember in the 1980s when gold rallied by 800%. Well before it did, the gold price halved. We have seen the same thing happen in silver of late. Silver has fallen back to important support levels, so its set to rally. All that money the Fed has created to re-capitalise the banks is going to prove inflationary in time. The implication then is that we want to hold asset classes which are not over-priced, like gold, silver, rural property, etc.
Silver is currently trading at $9.75/oz, up 33c overnight after halving in last 6 months. This is the time when you should be accumulating silver. You might ask me whether you should be trading Contracts for Difference (CFDs) in these commodities. I see no reason why you shouldn't because if these companies are exposed, your exposure is limited to the money on the table, and that's only 10% of your exposure if you are moderately geared to silver. You can actually gear silver as much as 20x as far as I'm aware, though it will depend on your CFD platform.

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Andrew Sheldon www.sheldonthinks.com

Gold close to support $730-770/oz

I am expecting gold to find support around these levels of $730-770/oz. The price has fallen to a long-term support. There is probably no better time to buy gold than now, though its possible that gold might consolidate in its current trading range for another 4-6 months. The policy of the Obama government will play an important role. I actually don't expect any change from Obama on monetary policy. I think he will be a social reformer intent on increasing taxes on the rich, as well as energy. No surprises there.

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Andrew Sheldon www.sheldonthinks.com

Platinum prices reach a low?

Platinum is of course a precious metal, so its in the same category as gold when it comes to the 'safe havens' of investment. It does have some interesting differences compared to gold though. These are:

1. Small stockpile compared to the vast hoards of gold
2. The greater industrial utility of platinum (arguably)
3. Greater volatility, smaller market, greater liquidity

We need to remember that platinum has performed far better than gold, and as a speculative instrument platinum was bound to be sold off. Car manufacturers would be cutting back of their needs for catalyst materials, so precipitating the price fall. The asset collapse is scaring people. But I suspect we are very close to a turn-around in this metal, and therefore platinum stocks. This metal might even do better than gold. The metal is already back to $950/oz. It has broken its uptrend, so we would be looking for a support. It might be $650/oz. Hard to believe many producers in South Africa could be profitable at those prices given the escalation in mining costs.
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Andrew Sheldon www.sheldonthinks.com