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Gold Current Price
Gold Current Price: Tips on Investing in Gold
A Look at streetTRACKS Gold Shares ETF
A Special Report for Dynamic Market Alert
August 4 , 2006
by S.R. Nunnally, Editor,
Material Profits
What I'm about to tell you just may be the most constant number you'll ever see as an investor. For the past 60 years, one ounce of gold has been able to buy on average 15.2 barrels of oil... And every time this ratio has fallen below 11, a severe market correction has ensued. The gold-to-oil ratio has been below 11 for quite a while now, hitting an all-time low of 6.6 back in August 2005.
Let me spell that out in dollars for you. When oil was averaging over $65 a barrel back in August 2005, gold prices were averaging below $440 an ounce.
Since then, both gold and oil have been rising very dramatically, with gold topping $720 an ounce and oil topping $76 a barrel - a sharp increase of 64% and 17% respectively. And get this: The gold-to-oil ratio only got back up to 9.47.
Recently, gold has been trading around $650 an ounce. According to our ratio, that ounce should be able to buy 15.2 barrels of oil, meaning the price of oil should be $42.76 a barrel. That's nowhere near where the price of oil is today!
What does that mean?
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One of two things must happen: oil prices must fall drastically (about 40%), or gold prices must continue to rise.
Tips on Investing in Gold: If You're an Oil Bull...
I'm a stone-cold oil bull. There isn't much that could make me believe that oil prices will break down below $60 a barrel let alone $45 in today's market. In fact, I'm not alone in calling for oil to have an $85 price tag by the end of the summer.
But let me show you how gold still has to rise, even if oil falls. For example, say Iran's president wakes up tomorrow and decides to halt his nuclear program, while Venezuela's president makes nice with the United States. At the same time, Nigerian terrorists lay down their arms and both ANWR and the Outer Continental Shelf are opened for oil extraction.
Oil tumbles down to $60 a barrel. Keeping that 15.2 ratio in mind, gold would have to rise to $912 an ounce to rebalance the gold-to-oil parity ratio. A 40% rise even if oil falls 15%!
It doesn't get much safer than that for an investor. As a frequent guest editor at WaveStrength Market Report, I've offered investors some interesting ways to take advantage of this ratio. But you don't have to be an elite trader to benefit from these recommendations.
Tips on Investing in Gold: Looking into ETFs
For many people, buying gold means going to Zales and picking out a nice 16" chain, or buying a few collectors' coins to pass on to your grandkids... There are other choices, like gold futures or gold futures options, gold mining indices and options, and the mining companies themselves... They all have their own problems, though, that make it difficult for the average or novice investor to take advantage of gold itself.
Some are too expensive or risky, and some just don't have the same type of movement that gold does. For a long time, there hasn't been a pure, easy way to play gold other than buying it at your local jewelry store.
Then, in late 2004 and early 2005, two gold ETFs (exchange traded funds) sprung to life, and investing in gold has never been easier.
Recently I highlighted the streetTRACKS Gold Shares ETF (GLD:NYSE) to my Material Profits subscribers. When you buy a share of GLD you're actually buying one-tenth of an ounce of gold. The ETF backs up all its shares with real gold.
You won't be able to take it with you like a gold coin or necklace, but this ETF does have its advantages... It is an extremely popular ETF with over 8 million in average volume every day. But huge swings in volume don't throw this vehicle off track. It's pegged to the spot price of gold, give or take a dollar due to fees.
This ETF has become such an effective investment vehicle that its demand for gold shot up 70% in 2005 compared to 2004. And the first quarter of 2006 showed a 59% increase in demand compared to the first quarter of 2005.
The best part? Since shares only trade one-tenth of an ounce of gold, the ETF shares are only one-tenth the price of gold! Talk about a great deal.
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The Demand and Gold Current Price
The largest demand for gold comes from the jewelry sector. Markets in India are a major driving force, and demand in China is starting to ramp up. In fact, India and Asia account for two-thirds of the entire jewelry demand. But The World Gold Council released its "Gold Demand Trends" report for the first quarter of 2006.
In it, the council writes:
"It is quite clear that the surge in investment has been the main factor behind the exceptional price rally that started in September 2005. Many of the drivers of this investment demand are not new; what is new is the increasing number of investors who are seeking to use gold to hedge against different types of risk, and the growing acceptance of the precious metal as a relevant investment in a way that has not been seen for a quarter of a century."
Some analysts say that the price of gold could double or even triple. I think that's very ambitious, and probably not likely in the near term. But I do see strong support for gold at current levels, rising to $635 an ounce starting in the fall. Within a year, gold prices could be back above $700, possibly pushing to $750 an ounce.
The gold-to-oil ratio should help push gold prices higher, as I expect oil prices to rise through summer and into fall. For those seeking to capitalize on this relationship, the streetTRACKS Gold Shares ETF (GLD:NYSE) is a good way to do it.
One item to consider... Summer is traditionally a lull time for gold demand, and thus prices decline. You could get a great deal, but you might have to wade through a couple of losing weeks before we see good gains. Keep an eye on it, and act accordingly.
For more from S.R. Nunnally, learn how to profit from alternative energy investments, such as ethanol, coal, uranium renewable energy, please click here to read our special report from Material Profits.
This report is brought to you by Dynamic Market Alert - the premier FREE investment service delivering just the news you need to profit when the market changes... long before the rest of the investing herd can act.
Copyright 2006, The Taipan Group, LLC and Dynamic Market Alert, 808 St. Paul St., Baltimore, MD 21201
All rights reserved. No part of this report may be reproduced or placed on any electronic medium without written permission from the publisher.
Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed.