Home > Black Gold: Is The Gold ETF Or Oil ETF A Better Inflation Hedge? (USO, GLD)

Black Gold: Is The Gold ETF Or Oil ETF A Better Inflation Hedge? (USO, GLD)

August 20th, 2009

black-gold“A reader recently wrote in with kudos for our April article on the gold/oil ratio (“How Much Oil Can Gold Buy?”). The ratio, if you’re not familiar with it, measures gold’s purchasing power in barrels of crude. That got me thinking about what else gold can buy. Gold is constantly advertised as an inflation hedge, so many people think that owning the metal provides constant insulation from the ravages of rising consumer prices. Year-by-year through 2008, it turns out crude oil has actually beaten gold at the inflation game, at least when measured against the Consumer Price Index (CPI). In a way, this makes perfect sense, since so much of present-day inflation stems from petroleum costs. 2009 may break oil’s record, but we’ll get to that in a minute,”  Brad Zigler Reports From Hard Assets Investor.

“The 1970s were, to say the least, inflationary. From a $39 average price in 1968, gold climbed to a 1980 peak of $615, where it then languished for two decades. The gold market finally sparked to life in the early days of the new millennium, when, in 2007, gold ripped through its 1980 high. Since then, prices have continued to rise: Gold’s average price in 2008 was $872,” Zigler Reports.

“Apparently, oil, which had played the weak sister to gold in the early days of the new millennium, has now outpaced the yellow metal.  Now, before you rush out to buy oil ETFs or ETNs (USO), take note of this: Oil’s taken a beating in 2009. The average price of crude now is about half of what it was last year. Gold, however, hasn’t given up ground; in fact, it’s on pace to show a gain for the year. Whether things will turn around by year’s end is an open question. But that brings us full circle to the gold/oil ratio. When it comes time to hedge inflation, the ratio provides some clues as to the better hedge. Gold is ascendant when the ratio turns up from a bottom; oil has the advantage when the ratio turns down from a top,”  Zigler Reports

Here is a look at what the Oil ETF (USO) and Gold ETF (GLD) has done in the past year below:

Chart for United States Oil (USO)

Chart for SPDR Gold Shares (GLD)

Chart for United States Oil (USO)

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  1. August 20th, 2009 at 19:05 | #1

    Great article, I hadn’t thought of Oil and may need to look into it more after reading your post. Personally, I think gold is about to break through it’s current $950/oz barrier.

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