Voices in Finance » gold

How Much Is Gold Worth and Oil?

Mike — Tue, 04 Oct 2011 09:01:54 +0000

Is there a relationship between how much gold is worth and the price of oil?

Some say there is and that it is linear…i.e. when the price of oil increases, so does the price of gold. One justification is that rising oil prices place upward pressure on inflation thereby stimulating how much gold is worth since a part of gold’s appeal is as a hedge against inflation.

Let’s start by looking at the historical price of oil over the last 40 odd years.

The Yom Kippur conflict of 1973 and subsequent Arab oil embargo resulted in a jump in the oil price from under $5 a barrel to over $10 which ever since then has been the floor in this market.

Just as markets were getting used to this doubling in price, 1979, the year after the Iranian Revolution saw another surge which pushed the price to $40 a barrel causing shockwaves around the world.

It was not until a substantial increase in production by Saudi Arabia during the mid-eighties that prices eased back to $10 a barrel and subsequently traded in the $10 to $30 range until the millenium after which the oil price has been constantly rising and even reaching over $100.

Now if there exists a relationship between the price of gold and the price of oil, then one would expect to see similar movements in the gold price during this period.

In the simplistic case where an increase in the price of oil leads to a similar increase in the price of gold, a graph mapping the ratio between the two should result in a line of approximately constant value.

Gold-Oil Ratio = Price of Gold (per oz.) / Price of Crude Oil (per barrel)

This gold/ oil graph results in a ratio that varies between a value of 10 and 30. This means that at times the price of gold is worth 30 times that of oil and at others, it is worth only 10 times as much.

This is hardly a straight line indicating that a strong relationship does not exist between the two. However, clearly some kind of elastic band is keeping the two together ensuring that they do not stray outside of these values for too long.

This gold/oil ratio is more useful to economists to identify at a high level when gold is generally over-bought or over-sold. For example, it the indicator hits 30, you know that gold is overvalued and a price correction may be on the cards. (On the other hand, oil may be undervalued and a price surge may be imminent…don’t you just love the free hand of the markets.)

So in conclusion, this brief analysis shows that oil and gold are tied to each other to some extent. This should not come as a surprise as they are both commodities that are of great importance to the global economy.

After all, oil is the ‘black gold’.

Suisse Gold Bars – 5 Reasons The Bank Says Buy

J. Hamilton Fraser — Sat, 18 Sep 2010 17:56:00 +0000

In a June 2010 report released by Credit Suisse Bank of Switzerland, 8 reasons are presented that support a continuation of gold’s upward price trend in the year’s ahead. Even though the bank is the issuer of Credit Suisse gold bars, it can be safely assumed that there is no conflict of interest here.

Of the 8 reasons, three are rather technical but the other five are tangible and give a good perspective on the current economic outlook and the role gold will play. This article summarises those 5 reasons. So if you are looking to get invested in quality bullion such as Suisse gold bars, read on.

Firstly
Dr David Davis, a bullion analyst at the bank reckons that the cost of producing gold may reach $1400 by 2015. Such circumstances would tend to favour a higher sale price for gold.

Secondly
In real terms the price of gold is still 34% less than its all-time peak. In other words even though the price of gold recently hit $1200, adjusted for inflation, it is not as high as when gold peaked at $850 in the late 70s. So there is still plenty of room left for this bull-run.

Thirdly
Threre are five scenarios that the banks sees as the way forward for the global economy. These are, more quantitive easing, deflation but with no quantitive easing, sovereign debt crisis, normal recovery and recovery combined with loose monetary policy. On balance, the bank reckons that the eventual outcome is 80% likely to support gold prices.

Fourthly
Countries like China and Japan hold a low proportion of their foreign exchange reserves in gold (1.6% and 2.5% respectively). Given that the financial crisis has shaken several of the world’s major currencies including the EURO and US Dollar, if these countries choose to transition some of their foreign currency into more gold, it would lead to massive demand.

Finally
Due to the financial crisis, interest rates have come crashing down around the world. One of those rates is the Federal Fund rate, which is the rate at which banks lend to each other. Currently it is under 2% and the Bank reckons it is going to stay that way for the next 3 years. Not only is that good for borrowers but also for gold which tends to perform well when this rate is under 2%.

In summary, all of the above points are good for gold prices. Even though prices look high, higher prices are coming and big profits can be made.

Best Investments: Gold Assets

J. Hamilton Fraser — Sat, 01 May 2010 22:39:50 +0000

Gold is a wonderful investment for anyone who is just starting out in the world of investing. It has been around for many years, and has continued to climb in value, and it has yet to show any signs of waning. So, if your goal is to invest in a solid method, gold is the route to go. Continue reading for more information.

Gold Investing For The Beginner

If you are new to the world of gold investments, you are most likely to hear about everything from gold ETF, to gold mining stocks, and hard assets. You may feel a bit overwhelmed with all the options. So today, we are going to cover why hard assets are one of the best routes to go, especially for a beginning investor.

Investing in hard assets such as gold coins and gold bars is one of the your best options. Simply because it is a tangible investment that you own, and are in complete control over. Rather than simply owning a share, you own actual gold. So when tough times come you have tangible gold to fall back on, as opposed to a share of gold.

Where You Can Find Hard Assets

Also, finding assets like gold coins, and gold bars is relatively easy. These days you can find them in pawn shops, collectible malls, and even flea markets. Many jewelry stores have also started selling gold coins as well since it tends to go hand in hand with that line of business. The main thing it to keep an outlook whenever you are out shopping.

However, one of the best ways to purchase gold coins or even gold bars, is on-line. Simply because most internet resources have no overhead costs, thus they are able to keep their overall costs down. In turn you will have the option to purchase more gold due to the lower costs. This is a great benefit of buying gold on-line.

Final Thoughts On Gold

You can rest assured that gold assets are an excellent resource to invest in. If you invest in gold coins or gold bars, you will never regret making that decision.

Where Can An Investor Feel Safe In 2010?

J. Hamilton Fraser — Mon, 05 Apr 2010 16:56:15 +0000

Stocks have gone almost straight up for about a year now and it has to be making more than a couple of people nervous. If you were lucky or smart enough to have bought into the market most anytime in the last 12 months, you probably have a good gain. Anybody with new cash to invest though, might be wondering how long this may keep up?

The current price of gold is also at a very high point and that might lead you to question whether or not it is too late for that sort of investment. With interest rates so low, there simply aren’t many choices for any investor that is looking for a reasonable return without too much risk. Gold is viewed by many as a hedge against inflation and hard times and we certainly have that right now. It does seem though, that gold cannot keep up its torrid pace higher and higher.

Anyone who has invested cash in stock shares most likely knows the awful feeling when everything starts to go south and on a regular basis turns out to be a loser. When you put new cash in, you always must be prepared for the chance that you will lose money. With so many optimistic months in a row behind us and a lot political uncertainty at every turn, the market may be set to go back down. Jobs are still very hard to get, house prices have not begun to rebound, and the United States is in so much debt it is astounding. Those aren’t positive things for the stock market and our economy.

Anything you will be able to learn from studying “stocks for dummies” type books will tell you how to technically do it but not how to decide what to do and when to do it. Picking successful stocks, knowing when to put money in, and when to take money out is something that may be more instinct than something that can be taught. Choosing good stocks is difficult enough in normal situations but it might be near impossible when the whole market goes down. It seems that some hard times might be ahead in 2010 and investing with caution is the prudent thing to do.

How Does the Economic Crisis Affect Gold Investment?

J. Hamilton Fraser — Thu, 25 Feb 2010 14:00:52 +0000

Since ancient times gold has been linked to inflation. It is not that the price of gold doesn’t fluctuate, it does, but in the long run gold has always maintained its value. This is why in times of crisis, risk averse investors flock to gold, to hedge against uncertainty.

Is Now a Good Time to Invest in Gold?

When inflation is high, investing in gold is prudent. Many observers believe that with governments heavily expanding their budgets, to get the wheels of the economy running, inflation will, indeed, rise. This would suggest that now is the right time to put some of your capital in gold.

However, remember that there has also been a credit crunch. People find it harder to loan money than they used to. This will tend to dampen inflation. Thus, while gold investing might be a good idea, investors should remain somewhat cautious.

How to Invest in Gold?

If you have decided that you want to hedge against coming inflation, your next step is to find out how you want to invest in gold. The truth is, options abound.

One way, that might not be all that practical, is to buy actual gold and store it. This will be attractive for some, since actually having gold might be fun, however, financially speaking, it might not be the most rational choice.

Another way to invest in gold, is to invest in gold mining. This can be done by buying individual gold mining stocks or by buying shares in gold ETFs with a portfolio of gold mining stocks. The first option offers higher risk but also higher reward.

Finally, you can invest in a gold ETF that aims at tracking the price of gold. For many this offers the best compromise between practicality, risk, and rate of return.

Securing Peace of Mind

If the economic crisis is making you uneasy and you believe the actions of governments and central banks will lead to significant inflation, forget about forex investing and other volatile markets. Now might be the time to invest in gold!

Gold Futures Trading

Pearlie Henthorn — Mon, 14 Dec 2009 21:03:28 +0000

The concept of a future is a rather simple one. It is in effect a contract to either buy or sell any specific commodity at a specified time. They are not direct sales of commodities, but are still classified like stocks and bonds as securities. They are solely influenced on the concept of supply and demand which is one reason they make such an amazing choice when it comes to investing.

Gold futures trading is quickly growing in popularity today as a way of trading gold. Old as well as the other precious metals are considered to be commodities and while they can be purchased directly, some investors prefer the futures market. It is not like an option in which one has a choice to finalize the sale at the end of the trading day, but rather it is forced upon both the buyer as well as the seller to finalize the trade contract.

The whole concept of gold futures trading can be a fast paced and exciting one; especially for those who have a bit of experience with the stock market. They were recently discussed in the hit movie the Taking of Pelham 123 and have been recognized for their profit potential in many other movies over the years as well.

If you choose to invest in gold, whether it is in bullion, certificates or any of the other many forms which one can invest in today, you will be not only diversifying your portfolio, but adding a bit of stability to it as well by looking into gold commodity trading. Do not simply trade in stocks without leaving yourself some margin for error and loss by making sure you have a bit of gold or any of the other precious metals in your trading portfolio; you will definitely be glad that you did when you loose a bit of cash on a trade.