What's Up with Gold and Oil?
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Ida Hansen
What’s Up with Gold and Oil?

Gold (NYSE: GLD) and oil (NYSE: USO) should not rise together in price.

But that is what is happening with the exchange traded fund for gold, SPDR Gold Shares, and the exchange traded fund for oil, United States Oil (NYSE: USO), both increasing in value.  That should not happen as oil goes up when an economy is strong and there is increasing demand for fuel to power the factories, motor vehicles, and other equipment.  Through the forces of basic supply and demand, oil then rises in price.

By contrast, gold goes up when an economy is weak.

Due to a weak economy, there is a lack of confidence in the fiat currency of a company.  That leads more to buy gold.  As billionaire investor Jim Rogers has noted, “A weak currency is a sign of a weak economy, which is a sign of a weak government.”

But a stronger economy in China could be pushing up the prices of gold and oil.

The People’s Republic of China is among the biggest consumer of gold and oil, along with many other commodities.  Economic growth in China is increasing again, which would lead to a greater demand for oil and gold.  Oil as a fuel, and gold as the choice of investors ranging from the central bank the individual consumer.

For investors, gold stocks such as Wishbone Gold PLC (PINK: WISHY) and Barrick Gold (NYSE: ABX) are attractive.  Wishgold Gold PLC is situated well with assets in Australia, ideal for serving the Chinese markets.  In the energy sector, firms operating in Canada are doing well, such as Suncor Energy (NYSE: SU), Octagon 88 (OCTBB: OCTX), and Americas Petrogas (YSX: BOE).  Due to political stability issues, oil and natural gas entities operating in North America are much more appealing.

As the chart below shows, the exchange traded funds for gold and oil have been rising together.  That should not take place, as there is a different set of demand factors for each.  But growth from China has each rising.


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