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Geopolitical Uncertainty
October 18, 2007

What does $90 oil mean for gold?

Oil War Economy

"Since 1968, on average, one ounce of gold would buy 15-16 barrels of oil. Not so, today. The chart below traces the oil-to-gold relationship, and you can see that the relationship has become out-of-whack. Back in 1999 an ounce of gold would buy almost 28 barrels of oil. Then in August, 2005, the relationship plunged and an ounce of gold would buy just 6.3 barrels of oil. Today an ounce of gold will buy 8.6 barrels of oil.

Today, gold is cheap compared with oil. If the relationship was to go the average since 1968, the price of gold would be nearer to 1500. That's not likely to happen, but the fact is that gold today is still cheap, too cheap. For any number of reasons, I continue to buy gold."

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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