- November 10, 2016
- Category: Gold
It’s a well-known fact that oil prices have tremendous influence on the rest of the economy. During periods when oil prices soar, inflation inflates the prices of almost every item in the economy. This is simply because gas prices rise when the price of oil increases. When the price of gas increases, the cost to transport goods from point A to point B also increases. This price increase is then transferred to the consumer in the way of higher prices at retail for the exact same items. So while it’s true that the price of oil impacts the overall economy, could it also affect the price of gold?
Gold is an important asset that has been a storehouse of wealth for thousands of years. Throughout history, every time a major financial crisis occurs, gold holds its value while paper currencies become worthless. Even in Ancient Rome, as money was diluted with other common metals, people flocked to the older gold and silver coins that were minted with standard amounts of the precious metals or gold nuggets in general. It’s second nature for humans to flock to the protection of gold investments when the economy is in ruins, their country is failing or their money is quickly losing value. In the modern world, oil prices are a good indicator of coming economic problems, and it is why we must monitor the price of oil to give us a view into future gold prices.
Typically, oil prices tend to plummet before a recession hits. A prolonged period of lower oil prices often signals a severe recession or even a depression. However, eventually this period ends and oil prices begin to move upwards again. This typically signals economic growth and produces inflation, which is consistent with a growing economy. If oil prices get too hot and begin to soar, it can produce rampant inflation in any economy. This is just the recipe needed to produce huge gains in the gold market.
Gold is one of the best inflation hedges known to investors. No other asset does a better job of protecting purchasing power than gold. In fact, gold can save vast fortunes when the local currency of a nation becomes worthless overnight. Because of this unique investment property of gold, rising oil prices typically send us an early inflation signal, which is very bullish for gold. As inflation increases and begins to reach hyperinflation levels, gold prices tend to soar. It’s no wonder that gold’s price reached $1,900 per ounce when oil prices were at or over $100 per barrel. Not only were oil prices at all-time highs but real estate prices and the cost of many other goods were also very elevated at or near multi decade highs.
Over the next couple of years, it’s impossible to know what will happen to the price of oil or the price of gold, but it will be vitally important to pay particular attention to the price action on the price of oil. This will give us key insights into the health of the economy and help to predict the future inflation that we may experience. If the price of oil suddenly rises to the $100 per barrel range, then it could be just the signal we’re looking for as gold investors, and we could predict that a big move in the price of gold is just around the corner.
After reading this, we hope you’ll consider adding some physical gold to your portfolio with American Bullion. There are so many options out there and also so many interesting and unique ways to invest in these precious metals that there is truly something for everyone.