October 5, 2012) - Hard assets are historically a smart place for investors to place their money, but those investing in gold know that there are options beyond the yellow metal. Oil is one of the many other commodities that one could turn to instead; but would this be a smart idea? According to a recent article by Chris Mayer in The Daily Reckoning, investing in precious metals could be a much smarter move than buying oil or even keeping the cash. Mayer, who was a corporate banker and has a long history in the financial industry, believes that the bull market in oil which began in 1998 is headed for a downturn because it is priced 230 percent higher than its long-term inflation-adjusted price.
This is big news because it means that those investing in gold today could be making a far smarter move than those who have been aboard the oil bandwagon for some time. If Mayer's estimations are correct, choosing to buy gold now while the Federal Reserve continues to print money and other central banks continue to risk running economies around the globe into the ground, is a better move than snapping up oil and hoping for yet another rise in prices. Investing in precious metals like gold is wise because it is considered a safe haven in the event of economic instability whereas oil prices are dependent upon demand. Today, many of the world's most industrialized nations are experiencing a shrinking of their economies that indicates demand for oil could very well drop.
Speaking of the current high prices for oil, Mayer wrote, "We know housing prices can’t sustain a price of 32 times the cost to rent them — as they did when housing prices peaked in 2006. That was again far above the long-term average of just 20 times. Housing prices later crashed."
This kind of economic nosedive has been predicted by others in the financial media recently as well, so it seems as if Mayer is not a solo voice in this regard. Oil is now easier to find thanks to massive leaps forward in technology. This is opening up vast sources of oil around the planet that will, at one point or another, begin to flow into the global markets. Once they start to do this, supply will increase and unless demand increases sharply for unexpected reasons, then prices will begin to drop and may even fall precipitously. Another point to remember is that greater fuel efficiency and alternative means of fueling consumer vehicles could leave more oil on the markets, helping to make it cheaper.
In the long run, gold and other precious metals tend to be the safer bet because they are not quite so reliant on demand as other more plentiful commodities tend to be. The rarer a commodity is, the higher its price tends to be and gold, while being strong for over a decade, has not been nearly as bullish as oil has.
So which of these commodities is the best idea for investors? Gold appears to be the winner, but investors are as unique as the portfolios they build so it remains up to each investor to decide which hard asset works best for them.