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Minyan Mailbag - Gold & Oil


Happy St. Patty's Day, Laurie!


Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.

Dear Laurie,

I was just wanting to get your opinion on a theory that I have regarding gold demand and oil prices. At $55 per barrel oil, the Middle East producers must be flooded with profits and in the past I believe they have taken these profits and invested in gold. I was wondering because it seems everyday another analyst on the Street throws out their old target for oil of $25 per barrel to much higher levels like in the $40s, some analysts saying late in the year as high as $80 per barrel, and now books talking about "peak oil" for Saudi within 24 months what effect if these upward biases for oil prices will have on gold if the Middle East put a majority of their profits there? Would this be a major demand/supply imbalance?

Minyan Chris R.

Hi Chris,

It's St Paddy's day down here already, er, I mean it was St Paddy's day down here yesterday, and I have been out to an importanat meeting followed by many very important beers. Hic.

Very briefly...

Gold should hold 436 in my opinion...fwiw...hic, yawn

Arab producers certainly do swap oil, a finite resource, for Gold which is infinite wealth/money and have done for yonks.The question is how much is it increasing by and how much the sellers have left to chuck at this baby bull market for gold?

Physical Gold demand is already strong in the Middle East as witnessed by surging imports through Turkey, a hub of the physical distribution throughout the region. Dubai jewelers are having record or near record months for sales. Premiums are up across the rest of Asia, but not so much Japan. Dunno much about South American physical and happy to hear from anyone down there for a Vibe.

In 1966ish when the London Gold Pool got busy, it was physical offtake which finally destroyed the group of Central Banks who attempted to halt the dollar gold price from rising. Charlie DeGaulle copped it up the clacker when he asked for Gold for his dollars, It all ended in massive inflation and the Great Nixon U.S. Dollar Default of 1971 (I think it was 71 but I may have pulled that out of my Jameson).

The oil/gold ratio is 8ish and historically iit has been 17ish with periods above 25ish. Is Oil gonna halve or Gold double to get back to long term historic value? OPEC say they're gonna lift production blah blah blah. Who gives a toss?! Refinery capacity limitations, transportation/freighters and printing U.S. Dollars like crazy isn't gonna send it back to $40.

Demand for physical is already here, Chris.The paper market is keeping it cheap, IMO.

Burp. Good night.


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