Will Oil support the run in Gold?

Having looked at the case for currencies supporting the continued run in Gold, what about the case for oil?

Certainly there are some concerns within Saudi Arabian production. The swing, or marginal producer is vital to keeping prices stable. Of course some of the price rise can simply be attributed to inflation and not fundamental changes in supply/demand.

So far the professional analysts have been badly wrong.

This tends to be a valid bearish argument. At some point high oil prices crash the economy, thus lowering the fundamental demand.

This then is the major problem with oil; we have an inflationary component, a supply/demand component and a speculative [fear] factor that all contribute to the final price of oil.

 

And why Gold may continue to rise

Yesterday’s post looked at some of the reasons why Gold may fall, or of course continue to rise. As Gold in one of its manifestations acts as a currency, or an unofficial Gold standard, it behooves us to look at fiat currencies to see if they are being inflated.

From the above chart, we can see that many currencies are in point of fact being inflated.

China, the saviour and driver of the decoupling theory, not one that I subscribe to, is suffering runaway inflation. China’s Banks additionally are a very dangerous mixture of very poorly performing loans, and a political instrument.

Inflation throughout history has decimated economies when allowed to run unchecked. China will learn the same lesson.

While the world runs inflationary monetary policies, inflationary fiscal policies, Gold will continue to appreciate. The trick will be recognizing when it is time to leave the table.

 

Why might Gold fall?

Gold, as the previous post illustrated is correlated to oil. Of course Gold is also correlated to the US dollar and other currencies, an unofficial Gold standard if you will.

And then of course we have Gold that is used in addition to it’s investment characteristics as a legitimate commodity, used in jewelry and other industrial uses.

The reasons for the rise and fall of Gold therefore become multifactorial, with analysis required to illuminate the factors most influencing the price in any number of given circumstances.