Gold Oil Relationship: 3 Theories
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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......

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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  • 1. The Gold Oil Relationship
    3 Theories
    www.goldratefortoday.org
  • 2. 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
  • 3. 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
  • 4. 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
  • 5. 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
  • 6. 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
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. Visit my blog:
    www.GoldRateForToday.org
    Live Gold Rates,
    Independent Trading Advise
    and many Resources
    about Gold Investing
    Interested in More?
    www.goldratefortoday.org