CHART: Iraq chaos lifts gold price – still cheap vs oil

CHART: Iraq chaos lifts gold price - still cheap vs oil

 

The gold price extended gains in after hours trade on Thursday as Iraq's descent into chaos prompted the return of safe haven buying.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery reached $1,275.10 an ounce, up $14 from Wednesday's trading session and the highest since May 23.

Gold and silver were standouts on a day when other metals were tanking.

With the turmoil in Ukraine fading from the headlines, gold's status as a hard asset and storer of wealth in times of trouble lost some of its shine.

But as Iraq spirals into all-out war and the US looks in danger of being pulled back into a conflict it has spent the last six years extricating itself from, gold is finding favour again.

The situation in the Middle Eastern country has deteriorated at a remarkably fast pace.

Yesterday Sunni militants from the Islamic State in Iraq and Syria, or ISIS, seized the northern cities of Mosul and Tikrit, and now the capital Baghdad appears to be under threat as the Iraqi army falls to pieces.

Already observers are talking about the possible break-up of the oil-rich country and regional players becoming involved as the Saudi Arabia-sponsored Sunni militias confront Iran-backed Shia-forces which dominate the current Iraqi government.

Not surprisingly the oil price has been on a tear rising to $106 a barrel, the highest in eight months.

Looking at the ratio between the gold price and the oil price which usually rise in tandem (rising oil prices pushes up inflation increasing demand for gold as a hedge), gold looks undervalued by comparison.

Since 1970 the average ratio – how many barrels of oil can be bought with one ounce of gold – is 15 compared with just under 12 now, which suggests that gold is cheap compared to oil.

The last time the ratio was at 12 was at the height of the global financial crisis in October-November 2008.

CHART: Iraq chaos lifts gold price - still cheap vs oil

Source: Macrotrends.net

Image of IED explosion al Anbar Province, Iraq by jamesdale10