| With the price of oil rising to record levels the only way | | | | India, too, is facing the same inflationary pressures with |
| is up for gold. | | | | the central bank already tightening monetary policy. |
| For better or for worse gold and its sticky partner oil | | | | GDP is predicted to slow from 8.5% to 8% this year |
| are inextricably linked together, trading within a | | | | as global demand for its exports softens. |
| well-defined range of each other since the Second | | | | The economies of India and China are still growing fast, |
| World War. As the price of oil rises, invariably the price | | | | but not as fast as they were. It is safe to assume, |
| of gold follows suit. | | | | therefore, that the supply of oil will be adequate to |
| As with all marriages there will inevitably be ups and | | | | meet current demand in the two Asian powerhouses. |
| downs. The undeniable symmetry of gold and oil prices | | | | While growth in these emerging markets is a factor it |
| is interrupted occasionally, but the recent bull-run on | | | | is by no means the only factor. |
| these commodities provides a hint at the future | | | | Rising inflation has cut consumer demand for gold in |
| direction of gold, widely regarded as the ultimate safe | | | | India by half as consumers wait for the price to fall to |
| haven investment in times of economic uncertainty. | | | | more affordable levels. This was part of a trend which |
| Gold, the most precious of precious metals has a long | | | | has seen consumer demand for gold fall globally, yet |
| history as a store of value stretching back many | | | | the price of a troy ounce rose to record levels in |
| thousands of years. | | | | March. So with plenty of gold and oil already in the |
| Oil, meanwhile, has become one of the world's most | | | | system, why are prices rising if real demand is falling? |
| important commodities since techniques to refine crude | | | | Speculative demand for oil and gold goes some way |
| oil were first developed in the mid 1850s. If you take | | | | to explaining this year's hike in prices. But this isn't the |
| biological processes out of the equation, virtually | | | | only factor, a perfect storm of political and economic |
| everything tangible that moves is powered by oil, and | | | | factors are threatening to plunge the world into an oil |
| demand for it is rising. | | | | crisis, the like of which hasn't been seen since the |
| As more expensive oil pushes up the price of energy, | | | | 1970s. Firstly there is the threat to supply. Attention has |
| money also flows to the safety of gold as a hedge | | | | been focused on events in Africa with investors |
| against inflation. It is fitting then, that their importance to | | | | seizing opportunities when the supply of oil and gold is |
| civilization has pushed this beauty and the beast | | | | threatened. For gold it is South Africa's problems with |
| partnership even closer together in the 21st century. | | | | supplying power to its gold mines, while in West Africa, |
| The closer correlation between the rising price of gold | | | | attacks by militants on pipelines in Nigeria has |
| and oil provides the answer to the future direction of | | | | intermittently fueled surges in oil this year. |
| the gold price. | | | | Another factor is the increasing tension developing |
| Inflation is the single biggest threat lurking in the | | | | between the US and Iran and, more recently, |
| shadows of the global economy replacing the credit | | | | Venezuela. The two countries are major thorns in the |
| crunch as the most serious threat to economic stability. | | | | side by the United state government. The leaders of |
| Inflation or more worryingly, 1970s style stagflation is | | | | both OPEC countries are blaming the US dollar for |
| threatening to derail a recovery in the economies of | | | | rising oil prices. Venezuelan president Hugo Chavez |
| the UK the US and Europe and governments seem | | | | even went as far as blaming "the fall of the American |
| powerless to stop it. | | | | empire". While President Bush was busy negotiating |
| From close marriages to uneasy partnerships, The | | | | with the less hostile regime in Saudi Arabia in the hope |
| economies of the emerging markets and those of the | | | | of boosting oil production, Iran and Venezuela were |
| rest of the world are moving in opposite directions. The | | | | declaring that supply was adequate. This may well be |
| blame for the current high price of oil has been placed | | | | true with news that as Saudi Arabia upped its |
| on the emerging economies of India and China - both | | | | production, Iran currently has 20 tankers full of oil |
| racing ahead while Europe and the USA are flat-lining . | | | | floating in storage and this number is likely to increase. |
| The voracious appetite for oil to fuel growth in these | | | | With the possibility of hostilities between the US and |
| countries is blamed for pushing up prices with global | | | | Iran erupting into armed conflict, the chances of oil rising |
| supply of oil stretched beyond its capacity to deliver - | | | | further this year are high. This would be seriously bad |
| or at least this is the accepted view. The truth is | | | | news at the pumps with the price of petrol and diesel |
| altogether more complex. | | | | rocketing as a result. |
| Oil has recently surged beyond $130 a barrel - | | | | More expensive energy will act to slow growth |
| unthinkable as recently as 2007. Yet demand should | | | | worldwide as inflation rises and governments tighten |
| be cooling as global growth slows. Let's look again at | | | | fiscal policies in the hope of controlling inflationary |
| China and India. Back in 2004 demand for oil in these | | | | pressures. Hope may yet come from the election of |
| countries was equally high leading to projections that it | | | | democrat candidate Barak Obama and a likely |
| would rise indefinitely. Back then, oil was comparatively | | | | softening of the hard line policy pursued by the Bush |
| cheap at around the $38 a barrel mark. Now, in 2008, | | | | administration. Until this happens, expect to see gold |
| the same argument is being pushed out yet the idea | | | | and oil continue to break records this year with the |
| that emerging economies are somehow guzzling up | | | | nightmare scenario of $200 a barrel looking |
| the global supply of oil doesn't stack up. | | | | increasingly more likely. If this happens, gold as a hedge |
| China's economy has certainly experienced rapid | | | | against ensuing inflation will also be pulled upwards to |
| growth in recent years, rocketing to 10.4 percent GDP | | | | record highs. |
| in 2006. This level of growth has slowed in the past | | | | The long term average gold to oil ratio is 15 barrels of |
| year with the World Bank predicting a fall to 8.7 | | | | oil to one ounce of gold. An ounce of gold at current |
| percent GDP in 2008. China's economy remains | | | | prices will buy you around 7 barrels of oil. With oil |
| perilously close to overheating with inflation predicted | | | | moving relentlessly towards $140 a barrel this week, |
| to reach 10 percent this year and the government are | | | | this makes a powerful case for investing in gold right |
| tightening fiscal policy as a result. | | | | now. |