Is the Gold: Oil Relationship An Old Wives Tale?

There are certainly specific times when some could make an argument that gold and oil don’t travel in the same general direction, but most of those episodes can be attributed directly to specific issues, whether governmental, environmental, or production forces, affecting one or the other commodity completely independent of the other. Generally speaking though the two commodities do travel in the same direction, due mainly to the direct affect that increasing oil prices have on increasing inflation and the corresponding response of gold to increase in value when inflation increases. There can be some lag time in the cause and effect results of this relationship, but generally speaking they both tend to travel in the same direction over time, with oil typically leading the way.

Both gold and oil are commodities, so from a financial point of view, unlike stocks and bonds these commodities don’t provide cash flows such as coupons, principal or dividends. Outside of industrial applications, the only way these commodities generate returns is by way of price change in the direction that the investor chooses to invest, or in the case of physical metal, a successful decision to buy low and sell high. This “lack of cash flow” concept is one of the main reasons that many investors don’t consider physical precious metals to be a competitive investment option. That point of view is understandable in normal economic conditions, but in today’s world, there is a more important overriding factor that simply can’t be ignored.

The overriding factor I’m referring to is precious metals’ ability to increase in value during times when most all other types of investment are falling or completely failing. No other “investment” option has the very long and illustrious history of precious metals. Simply put, in today’s precarious economic environment, precious metals should make up a greater part of a financial portfolio than ever before. A $20 trillion national debt, over-valued and over-heated stock market, befuddled Fed, chaotic new administration, and an unaccountable banking industry are just a few examples of the current concerns that should be driving American investors to the safety and security of physical precious metals.

The fact that the entire available supply of physical precious metals could be snatched up in nanoseconds is just another reason not to wait for further indications of a pending collapse. It’s more important than ever before to have physical precious metals in-hand. Don’t be left without a seat when the music stops.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.