Gold Is Cheap Relative to Crude Oil

Since the bull market in commodities began (around 2000), gold has remained cheap compared to crude oil. In fact, it's stayed in a trading range between 7 and 15... below the ratio's historic median of 15.

Based on supply-and-demand concerns, crude oil may be undergoing a permanent revaluation.

I think a higher oil price is probably justified, in both gold terms as well as real dollar terms. New oil reserves are becoming more difficult and costly to obtain. Also, demand for fuel has grown at an unprecedented pace, as developing nations like China undergo modernization.

But even if we assume the new range between 7 and 15 is now the norm, gold is still cheap.

Since 2000, one ounce of gold has bought less than 7.5 barrels of oil only 4.7% of the time. During these cheap periods, gold has outperformed oil by an average of 14.1% in the following three months.

Over the next three months, my money's on gold.

Good investing,

Ian Davis