$ Gold & $ Oil

Early Jan. - mid - Feb. is a positive seasonal time for the gold price. As in early 2014, gold is
again off to a strong start on the year reflecting a struggling stock market, as some equities
players drift over to play the metal. Back in Nov. I tried a very roundabout case for gold in
2015. I did not specify when, but I was thinking gold had a good shot at firming up in the
latter half of 2015.Gold Price

However, what has caught my eye this year is the relationship between the gold price and the
price of oil. The old rule of thumb here is that it should take 13 barrels of oil to purchase an oz.
of gold. So, the "standard" relative price index (RSI) for gold-to-oil should be 13 to 1. The
linked to chart that follows shows gold's RSI to oil for the past three years. Gold : WTIC Crude

As shown gold's RSI has more than doubled the long range norm of 13 to 28. This ballooning
of the RSI primarily reflects the dramatic decline in the price of crude over the past six odd
months, and leaves gold very strongly overpriced relative to the price of oil. I am mostly
interested in the gold price as an inflation hedge and since oil has been a primary leading
indicator of the inflation rate for over 100 years, gold now sits at a disturbing premium. This
is not to say that the price of gold needs to weaken dramatically, but that the gold price can be
seen as discounting a major rebound in the oil price such as has occurred during prior periods
when gold sold at more than 20 bls. It might also indicate that should the global economy,
excluding the US, firm up later in 2015 as outlined in the Nov. piece noted above, the US $
might lose strength and the oil price might bounce up on a  weaker $ and stronger oil
demand. May be worth thinking about.