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Gold Oil Relationship: 3 Theories
 

Gold Oil Relationship: 3 Theories

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Is there a correlation between oil and gold? The first idea suggests a direct causal relationship, the second argument proposes an impact of oil on shares of gold companies, and lastly a theory argues ...

Is there a correlation between oil and gold? The first idea suggests a direct causal relationship, the second argument proposes an impact of oil on shares of gold companies, and lastly a theory argues that the gold and oil prices are driven by a common factor ...

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    Gold Oil Relationship: 3 Theories Gold Oil Relationship: 3 Theories Presentation Transcript

    • The Gold Oil Relationship
      3 Theories
      www.goldratefortoday.org
    • Gold Scams: Three Types
      Is there a correlation between oil and gold?
      Three arguments:
      First, a direct causal relationship
      Second, impact of oil on shares of gold companies
      Third, gold and oil prices are driven by a common factor
      www.goldratefortoday.org
    • Gold Scams: Three Types
      First, a direct causal relationship
      One possible argument goes that a high oil price is bad for the economy, dampening growth and dragging down share prices
      As a consequence, investors look for alternative assets, such gold
      Thus, the oil price indirectly affects the price for gold
      www.goldratefortoday.org
    • Gold Scams: Three Types
      Such a scenario could be observed end of the 1970s when the oil cartel reduced the output of oil, so that its price surged
      This sent shockwaves through the U.S. and global economy and resulted in the long recession of the 1970s
      www.goldratefortoday.org
    • Gold Scams: Three Types
      Second, impact of oil on shares of gold companies
      Another line of thinking sees an inverse causation between the oil price and share prices of gold mining companies
      Expensive oil makes gold extraction more expensive and therefore minimizes the profit margin of gold mines
      This is because a big portion of mine expenses are related to energy (oil) prices
      www.goldratefortoday.org
    • Gold Scams: Three Types
      Third, gold and oil prices are driven by a common factor
      Both, gold and oil are traded in the U.S. dollar. Therefore, its price hinges on the strength of this currency
      What is a sign of the strength (or weakness) of a currency?
      It’s inflation rate
      www.goldratefortoday.org
    • Gold Scams: Three Types
      It can be argued that the prices of both commodities have a similar trend is not because one influences the other, but because their price is driven by a common factor
      And this is the inflation rate
      www.goldratefortoday.org
    • Gold Scams: Three Types
      This third theory is a reminder that correlation, meaning a similar pattern, does not necessarily imply causation
      One explanation might be indeed causation: The oil price influences directly the gold rate
      Another possibility is an indirect relationship, with another factor sitting in the middle
      www.goldratefortoday.org
    • Gold Scams: Three Types
      Or, as the third argument goes, a common factor that influences the rates of both commodities
      It can even become more complicated, if the relationship is not stable over time
      Say, in the 1970s the oil price might have had a much bigger influence on gold than it is now
      www.goldratefortoday.org
    • Visit my blog:
      www.GoldRateForToday.org
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      Independent Trading Advise
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      about Gold Investing
      Interested in More?
      www.goldratefortoday.org