Dear PGM Capital Blog readers,
In this weekend blog article, we want to discuss with you the Gold-to-Oil Ratio and the Gold-to-Silver ratio which currently are at an all-time-high might be predicting.
GOLD-TO-OIL RATIO:
On Friday, March 04, Gold closed on US$ US$ 1,259.10 an ounce and WTI crude at US$ 36.33 a barrel, which consequently brought the Gold-to-Oil ratio to 34.68. This means that one ounce of Gold would buy 34.68 barrels of WTI crude Oil.
As we can see from below chart, since the beginning of this year the Gold-to-Oil ratio is hovering around an all-time-high.
Above chart shows us also that for the last 30 years, high Gold-to-Oil ratios have been correlated to major crises over the past 30 years, it shows us that when the ratio of gold-to-oil spikes, something systemically serious occurs globally.
Dating back to the OPEC Oil Crisis of the early 1980s, the gold price has never been as high relative to oil as it is now.
When oil becomes extremely cheap relative to gold – and an ounce of gold will buy more oil now than ever before – history shows us that some major financial crisis is likely to follow.
GOLD AT 13-MONTH HIGH:
On Thursday, March 03, Gold entered a Bull Market, for the first time since 2011, buoyed by investors snapping up the metal as they seek a haven from the turmoil that has rocked equity markets.
As can be seen from below chart, bullion for immediate delivery settled at US$1,264.25 an ounce yesterday. That marks over a 20 percent gain from the recent closing low in December, meeting the common definition of a bull market.
Gold rallied 19 percent this year, beating gauges in Treasuries, currencies and equities amid concerns the slowdown in global growth will hurt the US economy.
That’s also fueling bets the Federal Reserve may delay interest rate increases this year, helping boost the investment appeal for bullion, which doesn’t pay yields or dividends.
GOLD-TO-SILVER RATIO APPROACHING ALL TIME HIGH:
History tells us that as a general rule the silver price performs better than gold when the latter is in a rising trend and conversely, performs worse on the downside.
But in the latest gold price run up, silver has very definitely been underperforming and the Gold-to-Silver Ratio (GSR), much loved by silver investors as a guide, is languishing near record high levels as can be seen from below chart of macrotrends.net, in which the vertical shaded areas representing periods of recession.
At the close of the market on Friday, March 4, with a Gold- and Silver price of respectively US$ 1,259.10 and US$ 15.51 per Troy Ounce, the Gold-to-Silver ratio was 81.17 (i.e. one ounce of gold is worth the same as 81.17 ounces of silver), as can be seen from below chart.
There does seem to be an interesting correlation between recessions and peaks in the Gold-to-Silver ratio, thus the recent high levels could do indicate a period of recession, which many reckon already to be with us.
PGM CAPITAL COMMENTS:
Investors should ask themselves if it is coincidence that both the Gold-to-Oil ratio as well as the Gold-to-Silver ratio are currently; “at” or “near” all-time-high.
Every as can be read here above every time during the last 40 years that this has happen, the world got into a crisis as can be seen from below chart of the Gold-to-Oil ratio.
Based on this most investors would be asking themselves:
What Crisis are the Gold-to-Oil & Gold-to-Silver Ratio Predicting This Time?
Both might be indicating that the world is heading for a recession, the correlation between the all-time high for both the Gold-to-Oil as well as the Gold-to-Oil ratio have much to do with the big industrial demand for both silver as well as oil. which tends to suffer when the economy is weak.
We hasten to add that though a crisis is usually good for gold and gold mining profits, we do not cheer for crisis and hope for the sake of humanity that we are wrong.
But given monetary policies over several decades – since USA president NIXON abandoned the Gold Standard- , we are positioned for crisis which we believe are baked into the system.
Since 2008-09, we haven’t have a recession in the West, but in the long run, we cannot avoid a major crisis in capitalism given the fact that policy makers, led by Politicians and Central Banks, all over the world do not allow price recognition of capital, thanks to interest rate manipulation and what can only be described as the bastardization of capital.
Based on this we believe that in a market that has dramatic swings from one day to the next, investors should diversify their portfolios that will win in any market condition in the longer term.
To begin, every investor should have a well diversified portfolio with at least 15 to 20 stocks, consisting of high-yielding stocks, bluechips, growth stocks, healthy geographical stock and gold and Silver.
In below video Mr. Mike Malony explains why the Gold-to-Silver ratio has exploded lately.
Gold and Silver brings a special element into a portfolio, because Gold and Silver are an insurance policy, because they tends to go up when everything else goes down. It gives investors insurance against geopolitical events, uncertainty and inflation.
As can be seen from below chart, the certified PGM-50 Component Index, which is overweighted with precious metals and mining companies, appreciated YTD with almost 20 percent, for which reason at has outperformed also al major Global Index.
Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don’t move in a straight line and that sharp corrections may happen in the short term.
Yours sincerely,
Eric Panneflek