>I'm new to the board, my apologies if this is >stale info.
Welcome to the board. Have you been in GG (or WHT prior) very long? This has been a topic of interesting discussion here.
>Have been reading an interesting article >today on the Gold/Oil ratio (GOR). It defines >a 60 year relationship between the price of >the two commodities that has been >statistically consistent with the ratio at >15.2 barrels of oil to an ounce of gold.
The ratio has different supply and demand forces working on each side of the ratio. There are also two routes of logic one can apply here to determine the validity of the ratio. The first question that must be considered is will this ratio always revert back to the mean or can something significantly change it. The second question is if the ratio does revert back gradually, which will break more: oil down or gold up? If you conclude the answer to the first question is that it will revert to the mean, the answer to the second question should help you decide if short oil or long gold is the ratio play.
The oil side contends that
1) unlike gold, oil is a commodity that once burned, cannot be restored. Since the supply of oil is continuously being reduced, every new barrel of oil is just a little bit more valuable than the previous one. Gold, on the other hand, is not consumed. The counterargument is we do not know how much oil is in the ground and whether or not the earth is actually continuously creating it (i.e. not really a fossil fuel?)
2) a person can live his or her entire life peacefully and well without touching a piece of gold, but try living a modern life without ever using a barrel of oil or a product made from a barrel of oil (e.g. plastic). Counterargument: the need for oil will be drastically reduced if new energy technologies replace petrol combustion. Also, some cultures really do consider gold as a vital part of life.
The gold side contends that
1) Oil wells can be found everywhere, but gold mines are very rare. Counterargument: irrelevant. The ratio already discounts supply and demand.
2) Gold is true and stable money. This is the second most hotly contested debate here, after "is **** actually an alias of ****?" Counterargument: when was the last time you bought something in gold?
3) The petrodollar hegemony will soon be eclipsed by gold. Gold will be needed to buy oil. Counterargument: speculation that America will sit back and watch that happen. Can you say Iraq?
4) The fiat dollar is collapsing and gold is our only protection. Counterargument: will the manipulators let this happen without extreme measures?
I am sure my friends on both sides of this debate can weigh in on the specifics. Personally, I trade the charts, not the ratios. I'm not convinced of the validity of commodity ratios (e.g. silver:gold). It is an interesting discussion, however.