Monday, July 21, 2008
An increasing number of observers (including myself) tend to agree with the premise of this WSJ story($) regarding the near-term outlook for oil and gold though, admittedly, one Gulf Coast storm or one wayward Middle East missile could change that very quickly.
While never a big believer in the merits of the "oil-gold ratio" as a predictive tool, it may be telling an important story at the moment.
Gold May Benefit as Oil FallsOf course, all you had to do was look at the mid-year gain of over 50 percent for oil and about 11 percent for gold to have a reasonably good idea which one would do better in the second half.
Yellow gold, which often tracks the crude-oil market, could outperform black gold in the foreseeable future because of financial-sector and inflation jitters.
Some analysts also suggest that the rally in oil prices this summer may be overdone, which could lead to the metal's strength.
The gold-oil ratio -- which measures how many barrels of oil it takes to buy one ounce of gold -- has risen to more than 7 from 6.3 recently, said Peter A. Grant, senior metals analyst with USAGOLD-Centennial Precious Metals Inc.
The historical average for the gold-oil ratio has been closer to 13 to 17. BMO Capital Markets says the range since 1975 has been mostly from 6.5 to 30.
"Historically, the gold-oil ratio has been much, much, much higher than it is today," said Bart Melek, global commodities strategist with BMO.
Note that, as of this morning, the year-to-date gain for oil has shrunk to about 35 percent and gold's gain has increased to 15 percent.