Home / Markets / Commodities /  Why gold prices may remain overvalued in relation to oil for long


As gold prices have been soaring for some time now, experts feel the yellow metal will stay higher in comparison to the oil prices for a prolonged period.

A recent report by natural resources investing company -- Goehring & Rozencwajg -- said that as central banks seem interested to continue their buying spree of physical gold, prices of the metal will continue to be overvalued.

Both gold and silver exchange traded funds (ETFs) have entered a sustained period of accumulation.

"As central banks now seek to accumulate physical gold alongside the ETFs, we believe gold could remain overvalued relative to oil for an extended period of time. This is just the opposite of what happened in the 1990s when central bank, producer and bullion bank selling left gold undervalued for an extended period of time," said that report by the natural resources investing company.

It further said that central banks are still buying large volumes of gold. The World Gold Council (WGC) believes central banks purchased an additional 374 tonnes in the first six months of 2019 alone.

The two key commodities -- oil and gold -- demand are taken generally taken into account to understand vivid economic scenarios.

At present, the global trade-war has projected a decline in growth and thus pulled-down crude oil prices. Contrary to oil, the same phenomenon has led investors to park their monies in gold, analysts said.

The Reserve Bank of India (RBI) too has been buying gold for more than 18 months now as part of its foreign exchange reserves management strategy to protect itself from a volatile dollar.

Further, the report noted that various large investors globally have already signaled their intensions regarding gold.

The report also said that the bear market in gold has run its course and a new bull market has begun. "All investors should have significant investments in precious metals and the related equities," it said.

"For those making their precious metal investments today, profits could be huge as we progress throughout the coming decade. If a speculative 'fever' emerges in precious metal markets (which we expect to happen), our price targets just mentioned could easily be surpassed."

Gold prices are currently trading near record high levels as renewed fears of a possible recession led investors to run for safe haven assets like gold. Gold prices had earlier fell sharply from its record highs after US deferred imposing fresh tariffs on imports of Chinese products.

At the Multi Commodity Exchange (MCX) on Friday, the October contract of gold touched an intra-day high of 38,220 per 10 gram. Earlier, the precious metal touched a life time high of 38,666 per 10 gram.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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