Gold Soars, Crude Oil Plunges

[Koolau]

Back to HaHa's original point, while I understand the rational for oil decline and gold soaring. It still seems counter-intuitive.

The idea behind gold is it is an alternative currency, which can't be manipulated/debased by governments ok I get this. However, it seems to me that oil is also something that can't be easily manipulated by governments. Now a slowing economy will decrease the amount of oil consumed, but doesn't it also decrease the amount of jewelry bought, gold watches sold, and even industrial uses for gold.

Big, big differences between gold and oil (in addition to the uses already made abundantly clear in this thread). Much more so than "apples and oranges."

Oil is at or near it's elasticity inflection point (I just made up that term) That is, a 1% higher supply than we use and the price crashes. A 1% lower supply than we use and oil peaks to $150/barrel.

Gold, trades in extremely small amounts of a few thousand (maybe a few 10's of thousands) of ounces per day. The supply is virtually "infinite" by comparison. Also, when gold gets "used", it's not really gone. It's still in your ring or bracelet or necklace or in your computer. It CAN still be recovered. The world's supply of stored gold has been described as a chunk of gold the size of the largest barn you ever saw. So, while it isn't really infinite, compared to how much is traded (used) the supply is absolutely huge. Now, I don't claim to know how that all changes the dynamics, but it's clear that oil and gold trade for two completely different reasons. Trying to figure it out is probably not worth the brain cells.

Regarding "government manipulation of oil" - ever hear of OPEC? Yeah, they "leak" and don't totally control oil supply, but all they have to do is make supply change by 1% to accomplish their goal of changing the price dramatically.

Speaking of which, if the US wanted to crash the gold markets, all they would have to do is offer a few 100,000 oz of gold from Fort Knox to the "highest" bidder. Don't know that it would ever get back to $35/oz, but it wouldn't stay at $1700 - at least not until Fort Knox ran dry.

Hey, there's an idea for paying down the debt.

 

[calmloki]

Not buying gold now, but am gratified to own some. It's price increase over the last few months says people are voting for it, irrational though that may be. So a question - is voting against the flow of the market rational? Was just looking at a gold graph for the last year - graph shows gold at $1200 back in September of 2010 and it's $1789.40 this afternoon. Back at $1200 i was arguing that we sell half of our Philharmonics. That suggestion is brought back up to me with a question about how some of my other stock purchases have been doing (looking at you emerging markets).

 

[REWahoo]

Back at $1200 i was arguing that we sell half of our Philharmonics.

Exactly what asset class do symphony orchestras fall under?

 

[Nords]

Exactly what asset class do symphony orchestras fall under?

Around here? Bankruptcy...

 

[REWahoo]

Around here? Bankruptcy...

<rimshot!>

 

[Gone4Good]

IMHO, the gold rally is symptomatic of a flight to safety. The lower crude prices is symptomatic of a slowing economy. \

Bingo

 

[dtbach]

Sure I should have bought gold back when it was $400/oz. Same can be said of Ebay and Yahoo in the 90's. Both have come back to earth. Gold is a relic, not much real use for the stuff other than bling or fashion for pimps and whores. So when nobody can afford the price of gold, what do you do?? It will come down just as fast as the dot comm crap.

 

[calmloki]

.... Gold is a relic, not much real use for the stuff other than bling or fashion for pimps and whores.....

You seem to have a real problem with gold. Did gold water your wheaties?

 

[packrat44]

The difference is they haven't figured out how to print it.

That is one of the reasons governments do not like gold (or silver). It keeps them honest. The government can print money without additional backing of value, but if an individual does it, it is counterfeiting.

 

[Koolau]

Sure I should have bought gold back when it was $400/oz. Same can be said of Ebay and Yahoo in the 90's. Both have come back to earth. Gold is a relic, not much real use for the stuff other than bling or fashion for pimps and whores. So when nobody can afford the price of gold, what do you do?? It will come down just as fast as the dot comm crap.

I don't really disagree with anything you say, but I would point out a couple of differences between gold and Ebay/Yahoo (or more importantly, the hundreds of dot.coms that flew high and then disappeared completely). While Ebay/Yahoo are known worldwide, they STILL are not known as widely as gold. I doubt any human on the planet over the age of 10 doesn't know that gold is "valuable". That is not true of Ebay/Yahoo.

The bigger difference is that, while every stock will eventually be worthless (as will every paper money) gold has several thousand years of track record of having at least some value. Yes, it varies - even widely, but it's never worthless.

There are at least 2 reasons to hold (or at least invest in) gold IMHO. A small amount 2% to 5% has been shown to balance a portfolio in ways that paper does not. Correlation between gold and paper is the reason. When paper (stocks/bonds) approach a correlation of 1, gold almost never does - especially not for 2 or 3 years at a time.

The second reason is that WTSHTF, gold is a portable store of wealth (proven through history) that may allow one to get out of Dodge with more than the shirt on one's back.

Personally, I've never done the latter (escape Dodge), but the correlation thing has made me very happy in the dot.com bubble as well as the '08 and current unsettled markets.

I see gold as "rational", but, of course, YMMV.

 

[dixonge]

Gold is being used by large institutional investors and government central banks worldwide as both a hedge and an alternative to U.S. treasuries. China wants to see the world move away from the dollar as the reserve currency of choice. Many other nations think similarly. China is even mining and keeping their own gold, never releasing it to the open market. THAT is why gold is still climbing. It's not a bubble or a 'relic' when that many large entities hold hundreds of tons of the stuff.

I was finally persuaded to use gold myself, mainly as a hedge against inflation eating up all of my non-invested cash. (I've been 100% cash for more than a year now) I did a lot of reading before pulling the trigger. I would have been happy with a stable sideways move, instead I'm up 20% in two months.

 

[Lsbcal]

I am hesitant to sell one remaining 1980 Maple Leaf 1 ounce gold coin I bought back then. It cost a lot to learn the economic lesson I learned way back then .

 

[chinaco]

See what Charlie Maxwell has to say about oil. Sept 10, 2011 episode of WealthTrack

Maxwell is a Senior Energy Analyst with Weeden & Company.

The interview does not discuss gold, but oil and energy... specifically fossil fuel.

He discusses the concern about Peak Oil and he has some insight into the issue and how to identify which energy companies may benefit the most if we begin to experience a shortage (i.e., when we demand equals supply... no or little surplus capacity).

Consuelo Mack WealthTrack - Home - The Right Track To Your Financial Health