Gold Cheap Versus Oil Signals Bullion to Rally: Chart of Day

Gold, trading near a record high, will outperform oil as surging inflation underscores the metal’s role as an investment hedge, according to Credit Suisse Group AG.

The CHART OF THE DAY shows prices of gold for immediate delivery and New York-traded crude since 2008. The lower panel tracks the ratio of gold to oil, which shows an ounce of bullion buys about 15 barrels of the fuel now, compared with 26 barrels two years ago.

“We see potential for gold to outperform oil over the coming months,” Stefan Graber, Zurich-based analyst with Credit Suisse, said in an e-mailed interview yesterday. “We think an ounce of gold could potentially buy a few additional barrels of oil. This assessment is based on our positive view on gold versus a neutral view on the oil market.”

Gold’s role as an inflation hedge will grow as consumer prices increase worldwide, he said. China, in its latest step to curb inflation, ordered banks on Feb. 18 to increase reserve requirements after raising interest rates earlier this month for the third time since mid-October.

For crude oil, spare production capacity among OPEC members is more than five million barrels a day, which should provide a cushion against unforeseen supply disruptions, including political events in the Middle East, Graber said. “Oil markets are now pricing in a considerable risk premium,” he said. “If the situation eases, the risk premium could fade and prices drop again considering the still comfortable supply situation.”

Gold for immediate delivery has fallen 1.6 percent this year to $1,398.03 an ounce after rallying 30 percent in 2010 and touching an all-time high of $1,431.25 an ounce on Dec. 7. Crude oil in New York traded at $95.70 a barrel and has advanced 4.7 percent this year after a 15 percent jump in 2010.

(To save a copy of the chart, click here.)

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To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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