OIL TO GOLD: Is a shift possible?Is your investment in a certain return portfolio? Analysts get a huge compensation for that. Not always as the market stinged a large group of such predictors in the last 18 months.However bullish or bearish the mantra may be, but after all, the root remains intact. Lessonsto be learnt; invest in commodities; not papers. Then there was up roaring of the signals: canwe hedge oil against gold or vice-versa. Let’s hire some of the facts of the stable andunstable blocks in the last couple of years to recount this option.The story from the first Q 2006 to last Q 2007 was what everyone believed. Gold indexfollows the oil Index. The gold oil ratio presented a static picture. Researchers and analystsall over the world were busy suggesting not to hedge gold for oil. And it was true too.Inflation, business making money, hikes in the salaries, that’s where the flocking started. Letus understand the sanctity of the relation between oil and gold. No disputes, both areimportant and required; but oil because of its indispensability and gold for its lustre.
The factors on which the basics of trading of these two commodities depends remains at theextreme end of the measuring bar
The price of oil is derived from the history of events andturmoil of bloodsheds. There has been a significant change in the oil systems around theglobe just to prevent a dilapidation of the economy. The share that it bears with the economyof the globe is far more than what is represented by gold. Or can traders make it happen theopposite way round? The gold oil ratio was round 14.3 a couple of years and that shrank closed to 7.5 in the last year. The oil price is pendant from a number of frequent skirmishes: between Israel and Iran; usual problems in Iraq, Nigeria etc. Its supplies have alwaysremained vulnerable. Until recent disruption in the oil prices, it was not advisable to hedgeone’s portfolio of oil with gold. But the uncertain in the crude oil prices has made the hedgingin the gold quite favourite.Let us explain it in a better term. Gold oil ratio shrank from 14.3 to 7.5 twelve months before, but that was a shift from the long term chart, i.e. the average number of barrelsrequired to buy one ounce of gold is around 14.5, which was then at 7.5. But that does notnecessary meant that the gold prices would hike by 14.5 times to $1700. Rather today’s oil price of $70/barrel again brings back gold oil ratio to the normal range of 14.5. Evidentlyfacts and research methods for analytical interpretation shows the same trend. For stablemarket condition replacing gold with oil goes on return only when proper arbitrage is