I calculated the historical ratios of price of gold per oz vis-a-vis oil per barrel in dollars. Monthly data from Jan 1985 to Feb 2008. And the results -
Certainly the average value has hovered around 15-16 and todays value at 9 -10 makes gold look cheap.
Why this particular ratio?
1. Gold has for long been an alternate form of investment to counter the inflation injected in to the economy. The prime source/driver being oil.
2. Figures dating back from 1949 suggest a 15-16 average.
But does this average hold true as of today?
1. Gold is a prime and a lucrative investment. But surely we have far more avenues to invest today.
2. Will economies/investors go back to buying more gold as a hedge against inflation considering the continued devaluation of the dollar?
3. Consider this alternate school of thought'Gold being overvalued'. Surely supply surplus will slowly kick in and gold value will moderate.But gold unlike other commodities - is a metal, there is only so much that Mother Earth can produce.
Views?
4 comments:
I do not know what other 'commodities' Mother Earth can produce limitlessly.
Oil prices are at an all time high since the owrld and its brother have now realised we have a ltd source that is fast depleting.
The thing about gold is that it is hard to corrupt or lose. You reach its pure form easily enough and neither fire not water can destroy it as such and that is why I think the value of gold will never diminish beyond a point.
I would say investing in gold is a damn good option - especially if you are investing in funds and not the actual metal, though that is a good option as well.
Commodities could be anything from wheat to silver. Surely whate production involves more manual intervention.
Oil prices are at an all time high - due to a fast depleting reseource yes. But the OPEC is playing pranks as well along with Mr Chavez throwing in a spanner once in a while. And added to it insatiable hunder that BRIC countries have - ofcourse Unc Sam is always on an alert.
Gold is a good option yes - but much do you stand to gain is the question.
Anything and everything that can be "traded" on bourses is never a safe investment. Also, try buying a lot of gold over you lifetime and selling it. You will know how darn difficult it is! Safe investments from my point of view should never be open to speculation else you are diluting the essence of "safe". Oil, gold, diamonds, land..all are controlled by cartels who will control the supply. FD's? Thats safe. House? Land in tier 2 city? Safe.
Seems like safety itself needs its parameters defined. We each seem to have our own yardstick.
As for investing in gold Easwar, as I said earlier in our chat - alternative natural resources for energy are the future gold. Of course we need efficient and cost effective means to harness natural resources for their energy. But the need is too immediate for research not to come up with effective solutions. As for safety - gold is as safe as land.There is only one rule. When u want to sell there are few buyers, when u wanna buy the prices escalate.
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