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.