It is apparent that another important ratio we look at to determine fair value for gold is the gold-oil ratio. Its particularly interesting to look at this ratio because the oil price has collapsed in recent months, falling from $140/barrel to $40/barrel. The result has been a rise in the gold-oil ratio from 7 to 28. In recent weeks the gold-oil ratio has recovered to 21, as oil prices rose.Its apparent that the first rally in the gold-oil ratio (measured on the right negative axis) was caused by the fall in oil prices. Having recovered to 21, I believe the next rally in the ratio to 28 will be in the midst of rising oil prices and gold prices. I would contend that the rise in oil prices will be caused by inflation and a weak USD. One might also attribute cuts in OPEC oil production as a cause however this is transitory since OPEC is going to lag in production cuts only for as long as such adjustments prove necessary.
Andrew Sheldon www.sheldonthinks.com
No comments:
Post a Comment