This post is an answer to an email received this morning:"What do you make of the gold-oil ratio these days? You see gold dropping back in line with oil, or oil continuing to surge back to gold, or that they are now in a new equilibrium, or is it a meaningless ratio, or what? This could be a fun chart."
What I make of the GOR is that, as is typical in markets, things are being pushed to an extreme to the downside in consolidation of the unsustainable upside gold experienced in ratio to oil, silver, industrial metals and just about everything else during Armageddon '08.
Now, as the US dollar is taken out for execution (yet again?), and the world goes into blow off risk taking mode, gold is of course thrown aside in favor of the 'play' whereby the global casino gets one more play at the table. This has been of course accompanied by all kinds of gold market analysts seeing the illusory inverted head & shoulders bullish 'bottom' pattern and the gold bug captains sounding their most caustic and strident tones. This is of course, bearish. The uncommitted flock that ran to gold out of panic is now being bled out. Simple.
So the answer is no, I don't see gold dropping back with oil. I don't see oil surging relative to gold much beyond the support noted in the chart and I don't see nominal oil going much higher than NFTRH's long standing secondary upside target of 78. What I see is a simple market mechanism in play whereby sentiment is being reset before the usual market participants assume their usual roles into coming events where the usual winners and the usual losers will assemble and do their thing.
If and when the next deflationary scare (as opposed to real deflation) arrives, gold will again gain the bid relative to all these plays. Meanwhile, we patiently wait.
