Posted on 07/09/2006 6:30:32 PM PDT by DebtAndDelusion
With oil now hitting record highs and gold well off mid-May levels, the gold-oil ratio continues to shrink. Today, one ounce of gold only buys 8.57 barrels of oil - a ratio of 0.11.
Oil hit a fresh record high of $75.78 a barrel today, boosted by strong demand in the United States and global tension ranging from Iran's nuclear work to North Korea's missile tests.
Prices drew early support from a U.S. government report yesterday showing gasoline demand grew by 1.4% in the last four weeks from a year ago, with summer driving months still head. But rebel attacks in Nigeria, the world's eighth-largest oil exporter, have shut almost a quarter of the country's output and the Iranian nuclear row has raised fears of supply cuts from the world’s fourth largest oil exporter.
Oil is up 23% this year on these geopolitical tensions and a flood of investment fund money into commodities, and many analysts are saying high oil is hear to stay. It has rallied from below $20 at the start of 2002.
In the meantime, this year gold soared to a high of $730 per ounce on May 12th, its highest in 26 years. But just as quickly as it sprinted to record highs, the yellow metal plummeted by $190/oz to a low of $542/oz just four weeks later.
Despite gold regaining some of its luster of late, the gold-oil ratio continues to slide. In May, using the average price of gold and oil for the month, the ratio was 9.57 barrels per gold ounce; the ratio averaged 8.4 bbl/oz in June. So far in 2006, the average gold-oil ratio is 8.3 bbl/oz – or around 0.11 gold ounces per barrel of oil
The long-term ratio has averaged about 17 bbl/oz since 1970. So far in 2006, the average ratio has been 8.7 bbl/oz.
Using the 36-year ratio, the “suggested” price for gold is $1,258/oz with oil at $37/bbl. Using the 2006 average, gold comes to $644/oz with oil at $72.9/oz - pretty close to today’s price differential.
Crude for August delivery climbed as high as $75.55 a barrel, to a set a record on the New York Mercantile Exchange for a front-month contract. It then pulled back to a close at $74.09, down $1.05.
Today, gold closed down $1.50 for the day at $634.80/oz on NYMEX. However, it gained 3.1% overall this week on tensions in North Korea and 4.8% last week on buzz that the Fed’s interest rate hike campaign is over.
The gold/oil price ratio is purely incidental. They do not impinge on one another. The price of gold climbs and declines inversely with the value of the dollar and in occasional spikes of speculation. Oil climbs when the demand for barrels of it climbs faster than the number of barrels produced.
Dont forget to account for the shrinking big mac.
I remember when they were too big for a childs hands.
My God, it's full of... GOLD!
http://www.nma.org/about_us/publications/pub_gold_uses.asp
If you care to check out the link above you just might learn something about the astounding depth of your ignorance concerning gold. What you don't know would fill volumes.
Don't you realize that arguing with a gold bug is a waste of time?
I suppose if you are running a clean-room chip factory in your garage, gold is useful to you.
Gold prices are not running up because of a demand for gold by end-users, they are running up because people want to put coins in their safety deposit boxes in the hope that in a year someone else will want to pay them a lot more to put the coins in THEIR safety deposit boxes.
I don't imagine even the rabid pro-gold posters are going to argue that gold is a good investment because of it's real-world uses. But since I have trouble imagining how people end up being rabid pro-gold posters, I suppose I could be surprised.
Meanwhile, nobody is buying oil to lock it up in their bank so they can sell it later (well, the oil companies do that, and there is a fledgling oil-purchase exchange where people bought gas years ago which was stored for use at a low price later, but even that was so they could USE it later.
How many gold bugs are going to melt down their coins in a couple of years to make rings, or to finish up their communications satellite, or to gold-plate their own monster audio cables or replace all their old silver fillings?
The uses of gold would fit nicely in bullet form on a small-print 9x11 glossy. I'm certain a skilled writer could fit every useful piece of information about gold in a single book.
And being employed at a site that actually HAS cleanroom manufacturing of chips for multiple uses, your lack of knowledge of my knowledge, while not volume-filling, is not something to brag about.
Only said that to suggest that if you are looking to educate someone, it's better to present information in a positive way without including uninformed judgment that might make you look silly.
Arguing is never a waste of time, its fun.
You are the one who implied that gold has no practical uses.
unlike Gold which has no useful purpose for the investors.
As I explained, I buy gas because I want to make my car go, not to store it away to sell it later. Investors in soybeans, oranges, cattle, and many other commodities also expect that the commodity itself will end up being USED by someone, if not by themselves.
Gold investors are not expecting demand for the use of gold to rise, so they aren't buying it to use it themselves, OR to sell it to other people who will use it. They are buying in the hopes that someone else will pay them more, specifically so that new person can hold onto it and then sell it for more -- with no intent of ANYBODY ever using the gold.
Which makes Gold a lot more like beanie babies than oil.
The fact that gold has a lot of uses is a separate issue from why investors buy it. That at least is my assertion, and saying that gold has a lot of uses does not negate that assertion.
Which makes Gold a lot more like beanie babies than oil.
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You are entitiled to your opinion, I see no resemblance between gold and beanie babies. Gold has many uses and does not corrode or waste away. Beanie babies have no use other than as toys and have no permanence.
It is conceivable to me that some other energy source could make oil lose most of its value but I don't foresee anything replacing gold, of course I don't know it all, do you see the possibility of anything replacing gold for all its current uses?
No, but almost all of it's current uses are fully recyclable, and demand for all its uses is a tiny fraction of the availability of gold.
In fact, if it wasn't for gold being used as a "monetary instrument", the cost of gold for all of its uses would be low enough to use a lot more of the gold, which might be a real benefit. But because most of it is hoarded by people who think it has an intrinsic value, the cost is too high for many uses where it could help save little bits of money.
For example, gold is a good conductor and could, if widely used, save a lot of energy if used in high-volume applications. But at 600 bucks an ounce it isn't used for inexpensive stuff.
The analogy with beanie babies is not that they last, but that beanie babies, like gold, had value only because people wanted to possess them for the sole purpose of possessing them.
Because, as I said, investors don't buy gold because they are stocking up to build their own gold-driven lasers -- they own gold in the hopes that over time other people will pay MORE to own gold.
If one day people decided not to own gold, gold would lose most of its value, because the actual uses of gold don't support the price. Just as when people decided not to own beanie babies anymore, the price on the open market dropped to the value for people who actually used them, like my family, as stuffed animals to be played with, not collected and kept in a box.
My favorite beanie story is one day we found some at a yard sale, mostly in the $20+ dollar range. The woman had each beanie in it's own sealed plastic box. I looked at my kids, and said that we didn't keep our beanies in the sealed boxes because they couldn't breathe and would die. My kids of course laughed, but a couple other children nearby started crying about the woman killing her beanie babies.
OK, that wasn't a nice story. My mother had the collection boxes, but she picked beanies she really liked, and still has them. We have over a hundred beanies, but most we got for a buck or less. We do buy them new as well, the cute ones at least.
Platinum is more expensive than gold, do you consider it to be overpriced in the same way? How about diamonds? I personally would not give fifty cents for a truckload of diamonds as far as my own personal use goes, I wear no jewelry of any kind, not even a wedding ring. My wife would like for me to wear one but I can't stand having anything on my hands and I have worked too many years at jobs where rings were not allowed. But I would like to have a few buckets of diamonds to trade for the things I really do value.
Platinum has I believe more uses than gold, and I believe it's price is more closely related to its value in use (although as with all commodities there is a measure of investor manipulation).
I think diamonds are just like gold in that regard. In fact, I think you can identify which things are sold based on human emotional response rather than real value by looking at the commercials used to sell them.
Diamonds are sold by making men believe women will have sex with them if you buy them diamonds.
Gold is sold by high-pressure sales tactics telling you how important it is to own gold in times of trouble.
When they advertise oil futures trading, it's always about shortages, cold spells, soaring demand -- in other words, the advertising talks about the USE of the commodity driving up the prices.
I don't think I've seen a SINGLE commercial telling me to buy gold because next year there will be a shortage of gold-plated speaker cables.
But he's really good at making himself look silly. Check it out.
The point is that the value of gold is more constant than the value of paper dollars.
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