Why buy Gold when you can own Oil? Reply

This is not an advice piece.  I like to think out loud through my blog.  Any investments you might undertake should be consulted with your financial advisor.

With that said, I cannot understand why people would put money into gold when they can buy oil at a huge discount.  As I type this, WTI oil is pricing at $80.91 per barrel.  We haven’t seen this level since Feb. of 2009. That was the midst of the biggest financial crisis our generation has seen.  Guess what, since then our economy has improved.  I know it may not feel like it, but it has.  Matter of fact, usage is up since January where oil was trading well over $100 per barrel.  It is a fact that most oil production companies and countries cannot make a profit selling oil below $80 per barrel, so it is in their best interest to keep the prices at these levels.  Believe me when I tell you that they have the power to do so.  The only exception to this rule is Saudi Arabia.  They can make money all the way down to $70 per barrel.

I don’t want to confuse this situation too much.  The real comparison is to gold.  Gold traded up to about $2k per ounce and has since traded back down to the $1,600 level.  That is a potential of 20% upside from here and will really only materialize if the dollar falls off a cliff with that of the Euro.  Remember though, that is the only real catalyst for gold… hell breaking loose.  As for oil, there are many factors that can contribute to it going back over $100 per barrel which is a 25% gain.  U.S. growth, improved employment numbers, a resolution of the “Euro crisis,” any strife in the middle East, or the upcoming trade embargo with Iran can shoot prices back up.  I don’t know about you, but I’m thinking if I have to pay $4.00 at the pump I would rather have at least made some money on its climb in prices.

July 1st is the deadline for the Iran situation.  Any lack of complete agreement with them will result in a trade embargo which will significantly decrease the world’s supply of oil.  I honestly hope that things don’t deteriorate, but it is a catalyst that can raise prices. If someone would like an idea of how to play it, one could buy the ETFs USO or UCO.  UCO is trading at $25.63.  It is a leveraged ETF and should return to $40 per share if oil trades back up to the $100 range giving you a 56% increase if you hold it that long.  USO is trading at $30.49 and was trading at $40 plus when oil was in the $100 range.  That would give you an approximate of 33% should oil trade back up to $100 levels.    The beauty of all this is that there is a pretty damn good chance that oil will return to $100 per barrel at some point.  I wouldn’t bet against it!

Again, so that no one tries to sue me, this is not an advice piece.  You should consult your advisor before making any decisions based on this information.

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