Gold/Oil Ratio Shouts "Buy Miners"

[Weatherman]

This is an interesting way to view the Gold/Oil ratio:

Snip:
Gold/Oil Ratio Shouts "Buy Miners"

The recent spike in the price of gold (to a new, nominal record) has occurred while the price of oil has pulled back, well below $80/barrel. Naturally, this means that the gold/oil price ratio has shifted to favor gold.

Some commentators see this ratio as instructive in telling them when to buy bullion. Others (like myself) view this statistic exclusively for instruction on the relative value of gold (and silver) miners. The reason for this latter view is obvious: along with labour costs, energy costs are the other, largest component of operating costs for a mine - especially for the more energy-intensive "open pit" mines.

Thus, it is no surprise that many if not most gold and silver miners are reporting "record profits" at the current time: the price for the commodity they produce is very high, while the price for the commodity they consume is relatively low. This is where the gold/oil ratio is instructive. Historically, $75/barrel is certainly a "high price" for crude oil. However, the gold/oil ratio tells us that the current price is favorable for miners.

More at: http://www.gold-eagle.com/editorials_08/nielson051310.html

[Aussie]

That's a very good point. We are sort of in a new paradigm now as gold is rising independently of everything. That's the best possible scenario for the miners. Like Trader Dan says, all it will take to ignite the gold mining sector is a few hedge funds to switch some of their bias away from the broader to markets as they decline further to the PM stocks as gold continues to rise. We may see some similar gains and market conditions to the earlier 2000's part of this bull run . . . which would be sweet!