This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

3 Reasons Oil Is Replacing Gold as Top Safe Haven for Investors

Stocks in this article: USO GLD UUP XOM CVX COP GG

NEW YORK ( TheStreet) -- The Great Recession changed investors priorities and now we see black gold replacing the yellow metal as the new safe haven asset. A simple look at  United States Oil Fund  (USO) and we can see it replacing SPDR Gold Shares Trust (GLD) as the safe haven asset. Investors and speculators have three primary reasons for leaving gold in the dust and riding the oil price boom wave. 

First, some history.

In August 2010 at the Jackson Hole economic summit, then-Federal Reserve Chair Ben Bernanke announced massive quantitative easing. This entailed the Federal Reserve expanding its balance sheet to purchase over $2 trillion in Treasuries and other securities to keep interest rates low. Quantitative easing was and is needed as there are no buyers, foreign or domestic, willing to purchase U.S. Treasury bonds and other securities at such low interest rates.

As a result, the value of the PowerShares DB US Dollar Index Bullish Trust (UUP) fell with hard asset prices such as gold and oil rising. Energy stocks such as ExxonMobil (XOM), Chevron (CVX), ConocoPhillips (COP) and others rose. Eventually the price of the yellow metal plunged while oil assets remained high, as shown by the chart below.

The major reason that oil replaced gold as a safe haven asset is that it appeals to both investors and speculators. Testifying before Congress in 2011, ExxonMobil CEO Rex Tillerson stated the price of oil was about 50% higher due to speculators. Oil appeals to investors as it is the primary fuel source for transportation, one of the world's largest industries. The allure to speculators is the massive profits that can be made from market, not economic, conditions.  Gold only appeals to speculators as it has no economic function.

Next is that oil, unlike gold, is consumed by factories, motor vehicles, etc.... There are supply and demand factors related to an economy producing goods and services that results in how much oil is used. From this, the price is affected. That is not the case with the yellow metal. It is almost completely for financial asset purposes. It relies on "the greater fool theory": purely the hope that someone else (i.e., "the greater fool") will pay more for gold.

Another is that the market for oil is much deeper, much more liquid and much more varied than that for the yellow metal. To state that the world oil market dwarves that for gold in size is a gross understatement. As just one example, the market capitalization for ExxonMobil, the biggest oil firm, is more than $440 billion. For Goldcorp (GG), the largest gold firm, it is just over $20 billion. Oil also has a wider range of investment products, too.

Oil, long called "black gold," has now replaced the yellow metal as the new safe haven asset, and that's justification enough to keep the price of black gold high.

At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Read More:

June 16 Premarket Briefing: 10 Things You Should Know

European Stocks Slide on Escalating Violence in Iraq

Earlier Market Losses End 3-Week Winning Streak

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs