Things have finally changed. Higher oil prices used to cause fear of a weaker economy and the bond market would rally, the lower rates would weaken the dollar which would cause gold to rise. The weaker dollar and lower rates would ususally be good for stocks.
Recent comments from central banks on diversifying their reserves added to comments from Greenspan regarding a conundrum and losing money on rising rates finally got the bond markets attention and rates have been moving higher since. The rising rates have not helped the dollar nor hurt gold in its quest for a new high this year. Visions of central banks dumping dollars has taken precedence over everything else.
As I stated in my last post of 03/08,regarding the stock market, "a little bit higher oil and interest rates would tip the scales". In my post of February 18, I gave my formula for a simple rule of thumb, whereby any combination of oil and ten year yeild that equals and index of 10 is a sell signal for stocks. For example if the 10yr yield is 4.5 and oil is$55 it equals and index of 10. Oil touched 54.60 on March 8 and has traded around there ever since. Interest rates also started moving up on that day. It's no coincidence that that day also marked the high for stocks.
1 comment:
Mover Mike
Here's an interesting chart showing the relationship between the price of Gold and the price of Oil. You can see in the late '90's Gold was 25 times the price of Oil, 15 times is probably the mean for 30 years, and today it is 8 times! The last time it traded at 8 times was in 2001, when Gold was about $250 per ounce.
IMO, we will see Oil at 100-120 per barrel. We know that the mine supply of physical gold is in deficit of 40% compared to world demand (roughly 2,500 ton mine supply vs. 4,500 ton annual demand) and the mine supply is decreasing each year. At 8 times Oil, Gold will sell at a minimum of $800 per ounce.
Post a Comment