About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Monday, May 05, 2014

Gold Relative To Oil

The old rule of thumb is that 13 barrels of oil buys you an ounce of gold. It is an important
relationship because periods of accelerating inflation over the past 130 years frequently get
rolling because of booms in the oil price and the remainder of the petro sector. the relationship
between the oil price and the price of gold was shelved as the first decade of the new century
wore on because of  high volatilty of each of the price series. Interestingly, however there
has been a return to the 13x ratio recently $GOLD / $WTIC

The oil price has made a cyclical recovery since a bubble collapse over the second half of
2006 and the gold price is much lower in the wake of a bubble bust starting over Half 2 of
2011. Given the importance of oil and petrol to inflation, perhaps it should lead the price
of gold by at least a little bit.

Since the old rule of thumb has recently been restored, I am willing to say that most of the
financial / monetary / economic crisis premium built into the price of gold over the past five
years has been wrung out. There has an important reset, one worth keeping in mind if you
are a gold aficionado.


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