Gold and Oil—The New Mecca


"Crude oil is spiking to $80 per barrel even though inventories are rebounding during a low demand season..."

Gold hit a high of $1,084.4/oz. Tuesday under renewed speculation the dollar is nearing an epic collapse. I cannot get through any day without hearing or reading that gold will be my salvation in the coming apocalypse.

Gold and Oil skyrocket intraday as the Dollar loses ground
Gold is a store of wealth, a very valuable intrinsic quality. But my faith is only in a currency that is backed by a hard asset, such as gold, but alas there are none. My next best choice is a currency backed by a country with a strong balance sheet, robust/diverse economy and government that acts with sound discipline. The dollar fails at least two of those criteria. Therefore, unless things shift mightily I have a negative long-term view on the dollar's purchasing power and will adjust my investments accordingly.

The destruction of a currency does not happen overnight just as a stock market does not proceed to zero in a month's time. There are many corrections and reversals along the way (volatility) with an equal number of doomsayers and green-shooters to annoy the most vehement bull or bear. I will not speculate on the peak price of gold during this current bull run, but I do want to speculate on the other commodities chasing it to the moon on the premise of a dollar collapse.

We are well within a season that typically shows falling demand in gasoline and oil. Crude oil is spiking to $80 per barrel even though inventories are rebounding during a low demand season amid a very weak economy with 10% unemployment.

Inventories have rebounded to 340 million barrels
I believe oil will remain around current levels or pull back for a mild correction as weakening demand and increasing supply weigh on the price. Many investors have been buying out of the money calls on gold and oil to capitalize on the coming collapse of the dollar. Selling out of the money December or January calls on USO or UGA looks attractive while the others hope and wait for an apocalypse.

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