Linking gold and oil prices (page 2 of 2)

Paradigm shifts

Others analysts strongly disagreed. Leonard Kaplan, a gold analyst with Prospector Asset Management, told Arabies TRENDS more than a year and a half ago that a drop in gold prices was out of the question.

As the US dollar continues to falter, as the equities markets continue their slide, as the paradigm shift from paper assets to hard assets builds a bit of momentum, as the budget deficits of the United States swell - it becomes apparent that gold must rise in response.

At the time, there were fears among some regional bankers of gold hoarding - driven by instability surrounding the war that had just been launched in Iraq - leading to a cash-flow crisis, a proposition that seems laughable today. But in March 2003, despite the fighting in Iraq, oil prices remained well below $30 per barrel, and there was no way to predict the surge that would take prices above the $50 mark.

So what to make of all this? Is the current gold-buying boom in the Gulf a sign of increased or decreased confidence in the future? Are regional shoppers hoarding hard assets based on a fear of future instability, or does the trend simply indicate that so many people have so much money to burn?

The latter is far more likely, of course. But the real test wont come for Gulf consumers until the gold:oil price ratio finally settles to its historical levels. After all, the last time the world looked like it does today, gold prices were on their way to $800 an ounce.