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Does cheaper oil mean cheaper gold?

Shock headlines are interesting things online.

They can be fact, have little to no basis in fact, or simply be speculation, but you want to read the stories behind them anyway because such headlines are so unexpected. You can’t make a determination until you read the story.

I happened to see such a headline this morning regarding oil on the CNBC financial website.

The headline trumpeted the possibility of $15 oil.

The case is simple.

The United States is running out of storage capacity for oil as more is being produced and imported than consumed.

When supply overwhelms demand, prices fall

Oil is down by more than half since last June.

A price of $15 a barrel is a 65 percent decline from the present $44 a barrel price.

If oil falls so much, what happens to gold – the ultimate inflation hedge?

Will gold fall by 65 percent to match oil?

It could.

That would justify, I suppose, a shock headline of gold $400, well, $409 to be precise.

If it fell the same percentage, silver would be $5.67 instead of today’s $16.20.

Such falls would seriously disturb cash flows in certain parts of the numismatic business.

Neither precious metal has been following oil too closely in recent months. Neither has been particularly strong, but neither has dropped by half since last June.

Gold in fact has hardly changed price since the end of 2013, when it was just over $1,200 an ounce.

Even if we go back to gold’s record high of about $1,900 at the beginning of September 2011, the percentage fall is only about 38 percent, far short of oil’s tumble.

In terms of oil, gold’s purchasing power has been soaring. How long can that continue?

Markets are nothing if not dynamic. They race ahead. They pull back. Traders make money on the changes. They don’t plant a flag and own something for years on end as gold and silver buyers do.

So now that the idea of $15 oil has been planted in your mind, will it plant the thought of $400 gold there as well?

It has already done so in mine.

Buzz blogger Dave Harper is winner of the 2014 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

 

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One Response to Does cheaper oil mean cheaper gold?

  1. hrlaser says:

    I see friends on fb shooting photographs of gas pump prices in other States (I live in the “South Bay” area of L.A. County, CA.).. and their photos show prices of $1.99 OR LESS for regular unleaded. I went to a Chevron gas station two blocks from home yesterday, and the pump price for regular unleaded was $3.25.. (and that is no an anomoly.. there are other name brand stations with the same price OR EVEN HIGHER! in this area.. there are refineries all over SoCal., and in fact, Standard Oil / Chevron has a refinery near LAX.. what I’d like to know is why we’re still being price-gouged for gasoline in this area, while people in other States are paying under two bucks a gallon for the same or other name brands.. $15.00/bbl oil sounds good on paper (or in pixels).. but we’re sure not seeing the effect of the drastically lower current oil prices around this neck of the woods.. :-/ ..

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