Buying gold has been the best way to preserve and increase your wealth in the past decade. Posted by James Randolph on February 20, 2012
Buying Gold and The Iran Situation
February 20, 2012 – Buying gold has been the best way to preserve and increase your wealth in the past decade. Gold has yielded a gain of 600 percent in those years and the bull market has strong fundamental indicators that the trend will continue far into the future. Consider the effect, however, of a serious intervention in the market. There has been a considerable amount of media play in the past three years concerning Iran. Now, there is a military buildup in the Persian Gulf, past and present officials in the American military establishment are speaking openly about a conflict, and Iran has ceased oil exports to some European nations.
The possibility of a military intervention with Iran appears to be more likely now than it has in the past. Most recently, Hans Blix, the former Chief of the IAEA and the prominent official who had an influential say in the months prior to Operation Iraqi Freedom, has warned against an attack on Iran. Given the present situation, it would be interesting to postulate on a military conflict in Iran or in the surrounding Arab states and the effect on the gold market.
The gold-oil ratio is a long-held indicator in the markets and consists of an indication of how many ounces of gold it takes to buy a barrel of oil. For about a decade, oil has been relatively undervalued compared with gold, meaning buying gold has been a more actively robust investment. The undervaluation of oil may be surprising considering the record costs of gasoline we have seen in this country. In the tenure of the current administration alone, the cost of gasoline has climbed about 86 percent.
As that ratio changes with the increase in the costs of a barrel of oil, gold is undervalued compared with oil now and in the near future. In the event of any military intervention with Iran over the escalation we are now seeing, the price of a barrel of oil will increase even higher, perhaps breaking long-standing and all-time records. This would increase the undervaluation of gold in the gold-oil ratio, making gold the best investment in such a scenario. Many people may be playing the oil futures considering the current situation in the Gulf, but gold is likely to be the better investment.
Due to its unstable nature, one cannot count on the outcome of a conflict between Western powers and the state of Iran. Gold, however, holds up in every scenario possible as a winning investment. If nothing happens in the Middle East, the price of gold will continue its decade long bull run and continue to fetch higher prices. If there is some escalation in the Middle East, gold is winner in commodities because oil will be overpriced relative to it. Buying gold is the easy decision to make when considering the Middle East.
Senior Staff Writer – Certified Gold Exchange