Look for Gold/Oil ratio before investing in gold

Look for Gold/Oil ratio before investing in gold

Commodity Online
MUMBAI: Crude oil prices have come downt o $120 per barrel levels while Gold has sunk below $900 levels, however, the Gold/Oil ratio is at all time lows which means that gold is now undervalued, according to Quantum Gold Fund.

Gold / Oil ratio refers to how much crude oil can be bought with one ounce of Gold. With gold at $863 per ounce and oil at $117 per barrel, the Gold/Oil ratio is at 7.31. The average for the last 40 years has been around 15.

“But does this mean gold prices are too low, or perhaps that crude oil prices are unsustainable at current levels and have to come down sharply and quickly. Your viewpoint depends on which side of the fence you are sitting on,” Quantum Fund said in a communiqué to investors.

If one were to take a pragmatic view, it seems likely that the future scenario could be something in between the two viewpoints. Given the number of factors influencing crude prices one can’t be really sure of the trend of crude oil prices in the future.

However one can be reasonably sure that the long term relationship of Gold to Crude oil will revert back to its historical average of around 1: 14.5 versus 1: 7.4 currently. This can happen either by a big fall in crude oil prices or gold prices moving up much higher.

Short term price movements of gold cannot be easily predicted, however, analysts and traders are bullish on on gold for medium term and predicted it could go to S2000 per ounce.

Crude oil is expected to slide below $ 100 per barrel mark, if some analysts predictions come true.

If Crude Oil prices fall further what will happen to gold prices? Crude Oil prices and gold prices move in tandem, if crude falls gold also comes tumbling down. Therefore a correction in Crude Oil prices led to a correction in Gold prices.

International crude oil prices increased by more than 47% this year when it reached its all time high of around $145 whereas international gold prices went up by only 14% during the same time frame. This shows that record crude oil prices were not followed by record gold prices.

“We believe that the gold / oil ratio will align with the long term average i.e 14.5. Even if crude oil prices correct to $100 levels which experts say could be the new floor price, then gold has to rise to $1450 to get back to its historical average. There are various forecasts of crude boiling to $150 levels and above. In such ascenario, to adjust to the historical average, gold prices will have to rise above $2100,” Quantum Gold Fund said

dear ok plz tell me what is the position
should we invest or not
is it right time to invst or not

recently dere was an article in economic times regarding gold and crude. was a very gud article. check for the eco times 1 to 10th august papers.

Crude Oil prices are usually referred to the price that is quoted for an immediate settlement.Majority of oil will be traded on an over-the-counter basis rather than traded on an exchange which is referred to a marker crude oil grade and typically quoted via pricing agencies such as Argus Media Ltd. and Platts.

Oil demand is dependent on the conditions of global micro economy. Moreover, it plays an important role on the determining of price.If oil prices increases then automatically there will be a effect on the gold market. Economists claim that high oil prices cause a large effect on economic growth. This means that the relationship of oil price and global growth is not that stable, although the increase in oil price is often said to be a late cycle phenomenon.

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