Gold+Oil: The New Reality

[lektrode]

Re: Gold+Oil: The New Reality

.....
It's Machiavellian really. I doubt Ben Bernanke realizes this per se, but maybe he does. I have no doubts that somewhere in the US intelligence community, someone is aware of this sad but true fact: If we hyperinflate the dollar, food costs will take care of the peak oil shortage by wiping out a lot of incremental demand in places that aren't the USA or our closest allies.

whooooo..... [chills to the spinal cord]
mr coolhand?
thats easily got to be the most ruthless 'conspiracy' theory that eye've ever read...

considering all thats happened the past dozen or so years?
not all that far fetched, IMHO

[harset]

Re: Gold+Oil: The New Reality

Since 1974 if we take major turning points (17 of them) in gold & take value of oil on those points we have correlation of 0.81......similarly if we take major turning points (10 of them) in oil & take value of gold on those points we have correlation on 0.77.......

[lektrode]

Re: Gold+Oil: The New Reality

Since 1974 if we take major turning points (17 of them) in gold & take value of oil on those points we have correlation of 0.81......similarly if we take major turning points (10 of them) in oil & take value of gold on those points we have correlation on 0.77.......

this sounds quite useful a metric to gain insight into relative values - but..
translation please, for those of us new to the game?

and seeing as EJ/Fred has indicated that they see (paraphrasing) a further move into gold at this point a risk that if oil falls gold will go down with it?

sorry if i didnt parse this well - so much to comprehend, so little time to do so

but if we could get some discussion here on what would be a good move to 'enjoy' the next peak oil move (that is, be on the correct/winning side of the trade, for a change, vs just getting sucked into the next dumb money dry hole...)

just buy oil producers directly? (they all pretty much seem priced for a move UP in crude - what if the economy doesnt/hasnt 'recovered' and what we're seeing is a setup similar to last spring's sucker rally)

are the servicers priced attractively, or have we missed, for the moment, their potential?

are _any_ of the ETF's suitable (and priced attractively) for what could be a big runup going into summer (or again are we already too late in the game to jump in?)

i'm been perhaps overly-cynical about the markets, in general, the past few years altho that has paid off for me (a novice/neophyte in the Grand Game) as i missed all of the downstroke, but am getting nervous sitting on cash (but because its essentially my working capital, as a self-employed type, who needs to make a change in direction, occupation wise and isnt inclined to haul off and jump into the casino at the moment - and free drinks in vegas never did much to entice me ;)

im inclined towards the nat resources play tho and it appears oil is ready to launch, kinda like rare earth miners were, last summer - esp with GS making noises 'all of a sudden' about oil (scenes from the spring of 08 style....)

comments?

[charliebrown]

Re: Gold+Oil: The New Reality

Ha, that's funny, I was thinking this same thing. oil is just so difficult to trade. I have DBC, Trusts, VDE, TOT as proxies.

[Master Shake]

Re: Gold+Oil: The New Reality

it has been my contention for some time that, between tracking etf's and full supertankers floating at anchor as long term storage, oil is being held increasingly not for use, but as a store of value. of course this is also a role of gold. both are taking on this function of money as the dollar loses this function. the dollar remains a unit of account and a facilitator of transactions. it is ceasing to be seen as a store of value.

I understand what you mean, but oil can't truly be a store of value given that it must ultimately be consumed, no?

[charliebrown]

Re: Gold+Oil: The New Reality

I don't have a crystal ball, but my guess is this time around $120 sustained prices in oil will cause another economic down draft, and we will see oil head back down to $60?? Sit there for awhile (6mos - 1 year as demand plummets), then rachet up again once things start to pick up again.

Gvts. who are a major consumer of oil are broke, U.S. consumers are broke and unemployed. People are nervous from the last downdraft. I don't think we will hit $150 like before. If we have $120 oil from June - July then in August, September,
I think we will have another recession. If we do have sustained $120 oil, I may sell my VDE, TOT and buy call options. That way if it goes to the moon I still win. If it crashes back to $60, I only lose a small amount. I will have to see what a 3-6 month option on say XOM or DBO is in July if we have $120 oil. but that is my general line of thinking.

[aaron]

Re: Gold+Oil: The New Reality

In other words, investing in gold is effectively the same as investing in oil.

Silver seemed a bit more like oil to me. It is useful like oil is and can be held as a store of value. Moreover, as oil goes up in price, base metal extraction and silver extraction costs will go up as well. Higher oil prices add substantially to the cost of mining.

Full oil tankers are silver coins for the ultra-wealthy. Imagine their poker games!

[Starving Steve]

Re: Gold+Oil: The New Reality

Light and sweet oil is available on the sea-floor, in the trench south of Louisiana. The drilling has already been done. The oil is available in huge quantity. But the well is cemented and closed in order to protect bird habitat...........Expenses paid, drilling done, quantity and quality of oil proven, pressure proven, but bird-habitat preservation is more important to America.

Alberta's tar sands offer an endless supply of oil at prices over $80 per barrel. But ecologists object...............

There is oil under shale rock formations in western Colorado. There is oil under shale in Wyoming. But ecologists object..........

There is the availability of hydro-electric power in British Columbia if hydro-electric dams would be built. But ecologists object.........

There is natural gas almost everywhere underground in North America, but ecologist object.............

Mexico has heavy-oil potentially available for up-grading, but ecologists object, etc.

BP now explores for oil for China in the South China Sea. Why would that be?

[Glenn Black]

Re: Gold+Oil: The New Reality

this sounds quite useful a metric to gain insight into relative values - but..
translation please, for those of us new to the game?

and seeing as EJ/Fred has indicated that they see (paraphrasing) a further move into gold at this point a risk that if oil falls gold will go down with it?

sorry if i didnt parse this well - so much to comprehend, so little time to do so

but if we could get some discussion here on what would be a good move to 'enjoy' the next peak oil move (that is, be on the correct/winning side of the trade, for a change, vs just getting sucked into the next dumb money dry hole...)

just buy oil producers directly? (they all pretty much seem priced for a move UP in crude - what if the economy doesnt/hasnt 'recovered' and what we're seeing is a setup similar to last spring's sucker rally)

are the servicers priced attractively, or have we missed, for the moment, their potential?

are _any_ of the ETF's suitable (and priced attractively) for what could be a big runup going into summer (or again are we already too late in the game to jump in?)

i'm been perhaps overly-cynical about the markets, in general, the past few years altho that has paid off for me (a novice/neophyte in the Grand Game) as i missed all of the downstroke, but am getting nervous sitting on cash (but because its essentially my working capital, as a self-employed type, who needs to make a change in direction, occupation wise and isnt inclined to haul off and jump into the casino at the moment - and free drinks in vegas never did much to entice me ;)

im inclined towards the nat resources play tho and it appears oil is ready to launch, kinda like rare earth miners were, last summer - esp with GS making noises 'all of a sudden' about oil (scenes from the spring of 08 style....)

comments?

I think EJ said, and I agree oil producers are not necessarily the best investment at this point for the long term. About 93% of the world's oil is owned & controlled by governments, 7% is owned by oil companies. As governments (eg. OPEC) necessarily raises the price of crude (a more and more scarce commodity), the transportation companies, refiners, distribution, and retailers add on their extra slice on top. In most regions and markets, high differentials are not tolerated for long. People will find a cheaper alternative if the current one starts gouging their customers or falls behind in efficiency or effectiveness.

In the end, they make a living. As the price goes up and up, and fewer people can afford to be as wasteful in their energy consumption, the per capita use of energy goes down drastically, especially in Canada (the energy pigs of the world), the US, and others. Old antiquated plants, loss of market share (to competing technologies), loss of volume (fewer gallons flowing through the plants, fixed overheads, means each gallon processed has to carry a bigger share of the fixed overhead costs), and cranky customers who show no loyalty whatsoever (eg. charge 1/4 cent/gallon higher than competitor, & they will end a 20 year business relationship).

The alternative is an ETF that matches the price of oil. While this will theoretically produce huge results, be careful that it is just paper backed by a Hollywood facade and mirage. Trust too much for too long, and you could have made a fortune on paper, but can't collect. In addition, your profits will be in US$, which are more and more worthless. I see no obvious solution here either.

That's why I'm stuck too. I procrastinated back in 2001 with "going crazy", considering the buying of gold. I am stuck in the same rut today. Unable to buy precious metals due to some psychological hangup, but extremely wary of Wall Street's paper pushers and evil banksters.

If someone were to decide to buy precious metals, I don't see a clear exit strategy.

I went to 100% cash in April 2008, and haven't moved from there.

[charliebrown]

Re: Gold+Oil: The New Reality

I know the relentless tick up of the markets must be making you crazy, but you are still ahead.


Most of the ETFs for oil, DBO, USO etc. even if they do not implode because of ponzi trading of oil contracts,
will lose because of contango. There prices are not based upon spot prices, but the value of a basket of
futures contracts on oil. I don't know what the current futures prices are but for example, if spot oil, is trading at $100 today, A July 100 Future might be trading for $105 and that is what you own if you buy DBO today. If everything stays the same (crude dosen't move contango amount dosent change), in roughly June your fund will sell your July 100 contract
for roughly 100, and buy a Nov $100 contract for $105. So you just lost $5.00 due to roll.

If you have charting access you can compare DBO to WTI and see the decay over time due to roll of futures contract loss.
This is all explained in the prospectus. I made this mistake several years ago. When I held DBO for a long time without
and appreciation of oil prices. The larger the contango the more oil will have to rise for you to be able to break even
over rolling periods. Contango is measured by the price of a future contract say July 100 - price of currnent contract Mar 100.

One of our smarter and more senior members can probably explain this better and more accurately than I can.


The DBO prospectus says they try to minimize the effect of roll, and if you compare DBO to USO I think it looks like there is less decay, but they don't have crystal balls, otherwise they would not be managing some crummy little ETFs, they would own some island and be sipping margaritas.

I am behind the curve too. I read EJ in the dot com era, and bought 1% of my nw in gold in 2003. There were lots of other voices saying gold is relic over valued blah blah blah so I hedged my bets. I did not really become a gold buyer until around 2007 when the price was around $750. But then I was only at 5%. I'm still not up to EJs 30% reccomendation, but I am dollar cost averaging in hoping to see a repeat of 2008, when gold pulled back to $800. I buy a small block every month. I bought a medium block in January when the price pulled back to 1280 in January. If we ever see, a 10% pull back I'm buying a big block.

Some late comers here at Itulip wend all in and just pulled the trigger, even at gold north of 1200. I'm too timid/frugal and I always think another big pull back is in the cards and I will load up. This strategy has failed me since
when I decided to commit to gold I could have filled my desirec allocation at roughly $1000. Now I am still buying at $1350.
Altough by waiting I do have one thing going is that things are unfolding as predicted many years ago. So that
gives me more confidence today the the underlying premise that the treas/fed can and will inflate more validity with
each passing month.

[Glenn Black]

Re: Gold+Oil: The New Reality

20110224-Gold-Oil.jpg

http://www.resourceinvestor.com/News...Oil-Ratio.aspx

A day after my original post, somebody else posted a similar entry, but their chart was even better than the one I generated. A helpful tool to assess current conditions in gold-oil market.

I suggest we all start speaking about the price of gold and oil as barrels per ounce of gold. Within a band of fluctuation, this oil-gold ratio has been a constant. I wonder if this is what OPEC used to re-adjust their prices in 1973?

By doing so, we avoid the confusion added by the US$ (ie. "safe haven" buy/sell, interest rates, QE II, and all the other factors) that make the US$ go up & down.