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Tuesday, January 22nd, 2019 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Investing in Calamity: Gold vs. Oil

With inflation and Gadhafi rearing their ugly heads and disasters like the biggest earthquake to hit Japan in 140 years, an investor has to consider upping his weighting in oil and gold. But which is better? I say gold, and here’s why.

Both commodities will probably be making their way higher in the face of revolutionary unrest and dollar weakness. But a key difference is their demand picture. With oil, you have a definite demand destruction problem if the price climbs too fast. From where we are now at around $100 to where the price climb starts to defeat itself – most economists say around $115 or so – is not that much of a percentage move. To cipher it up, it’s only a measly 15%. As oil goes over $115, the stock market will not like it, and the oil stocks tend to follow the SPX.

Things like hurricanes and earthquakes are about a wash for oil demand as it weakens economic activity initially, but the massive rebuild effort that follows adds to normal demand.

Gold, on the other hand, has a much different demand picture. It is viewed as an alternative currency; and a weaker economy, in Helicopter Ben’s regime, is a demand enhancer for gold and silver. Gold does not have a demand destruction ceiling blocking its way just 15 measly percentage points ahead. And for silver, 15% is one baby step.

Also a big demand difference is the “tilt” factor. As the world’s total investment pool tilts away from stocks and other paper assets into either gold or oil, gold and silver have the tinier market cap bucket to catch the pour and move accordingly. Incredibly, in this time of historic revolutionary unrest, currency destruction, and unprecedented natural disasters, the global asset allocation to gold stands at less than 1% as compared to the historical norm of 5% to 10% and the usual financial planner recommendation of 15%. It doesn’t take much of a tilt away from paper to hard assets to create a deluge when the global total market cap of stocks and bonds is about $140 trillion compared to the $5.2 trillion worth of all the gold that has ever been mined plus the market cap of the whole gold industry! As for all the silver that has ever been mined; well it’s essentially all gone now! And as for the miners, here is a bucket size comparison for gold and oil:

(Click to enlarge)

Any asset reallocation into gold and oil stocks will push gold around much more easily than oil. When you consider that the handful of major gold miners typically doesn’t move much in a gold move, you see why the quality juniors are so lively as capital is tilted into gold. There is likely to be some major reallocation to come, and the “tilt” factor heavily favors gold over oil.

Yet you hear continuously of the crazy gold bubble we are in. Technically, it just doesn’t look like a runaway market condition:

(Click to enlarge)

1979 it is not, but it’s getting there. It seems to be clearly wanting to follow the larger scale twin parabola fractal I’ve written about. Gold is tooling along in the middle of a bull market, and we look to be getting into a fresh climb zone which historically seems to run between RSI 50 and 85 on the weekly charting.

So cry “bubble” for gold if you must, or run to oil as the place to be now. But I really think gold and silver offer the same advantages over stocks and bonds that oil offers without the overhead resistance problem and much more performance potential.

Disclosure: I am long DBO, CEF. I am also long an assortment of gold and silver miners

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