Gold Forecast: Why Gold Is Still Overvalued

Last week saw an unexpected move up in gold. It ended the week outside our forecast range for the first time in a while. We have had a good run recently maintaining our bearish stance and following this long-term bear market continuation. But before the bulls get too excited, it is always worth putting this rise in to context and comparing gold’s value relative not to dollars but to some other physical good with utility.

Below is an historical gold oil price ratio chart.  We have been forecasting the oil price with some success in the last few months and have been carefully monitoring this ratio. Well as of Friday close, gold buys more barrels of oil than at almost any time in history. We believe that value lies with oil and not with gold. Our forecasts have mapped the demise of oil -- and currently we cannot see any evidence of a change of trend in the oil price.

As of the Friday close, an ounce of gold buys over 33 barrels of oil.  A monthly close in excess of 35 would be an historic record, as many a sports commentator would say “records are there to be broken” but records are anomalies and the energy required to create them soon dissipates.

Since the financial crisis gold has substantially outperformed oil, contrary to the bearishness surrounding it gold has maintained its purchasing power against an asset you will all need throughout the rest of your lives. We live in the oil age, our global economy relies on the black stuff, it is a vital component of our sophisticated high quality lives. We need oil for transport, plastics, agriculture it makes the world a smaller place and without it we would probably head back to the dark ages.

Now ratios are always a strange beast as we could see a number of scenarios over the next few months with oil likely to begin to outperform gold either through gold falling faster than oil in the next phase or oil rising faster than gold. Over the last few years neither has performed well against the Dollar and that trend does not look like ending any time soon in spite of last week’s rise in gold.

The oil price is now at financial crisis lows.  Therefore, or gold to reach these lows as well a considerable drop would be needed over the next few months.  This would restore the ratio to a more fair and sustainable level. This divergence in the relative values of these two assets will need to be addressed by the markets. And if history is any guide, it will be relatively violent. We cannot be sure how this realignment in value will occur, but it will be interesting to watch however it happens.

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We now create forecasts for a wide range of markets, stocks, commodities, forex, interest rates and energy along with gold using our unique forecasting logic that has kept our followers on the right side of the gold market for so long.

To view some of the most accurate and unique market forecasts available visit us at: http://www.kenticehurst.com