Thursday, May 15, 2008
A good first step in debunking bogus thinking like "high oil prices are adding to inflation" is for this well hyped commodity to reverse lower while the monetary metal, gold holds its own or continues higher. Inflation is a monetary policy problem. High oil is merely one symptom of the problem. Using the intraday proxy GLD-USO here, we see the potential for gold finally bottoming out vs. oil. Against the Dow, gold still looks to decline in the very short term but that game could end at any time since one of those markets is in a genuine bull and the other is basically just that, bull (Dow-Gold ratio very bearish beyond the short term). The one scenario I did not want to see was the gold miners rising with oil. Today they are detached from this driver of costs to their bottom lines. I would like to see the trend continue.