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Gary Tanashian is proprietor of and Actionable, hype-free technical, macro economic and sentiment analysis is provided in the premium market report 'Notes From the Rabbit Hole' ( Complimentary analysis and commentary is available at the... More
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  • Au-Oil Ratio: More Than Just a Story About Gold Mining Fundamentals 0 comments
    Aug 15, 2011 8:06 AM | about stocks: GLD, USO, TLT, IEF, UUP, QQQ, DIA, SPY, GDX, GDXJ, SLV

    As a speculator, gold's ratio to crude oil (GOR) is important to me as it, and several other ratios pertain to the unique gold mining industry. 

    But as a macro big picture observer managing intermediate turns the GOR, along with so many other gold ratios is important in telling me what is in play with respect to the ever entertaining inflation/deflation debate. 

    Masses of debaters ceaselessly argue their points because both are right; there is inflation and there is deflation, all contained within a beautiful continuum of deflationary impulse met by inflationary response, enabled by the decades long trend in Treasury bonds, whether real or ginned up.

    But I digress.  The GOR shows us how clearly screwed up we are in that every time gold gains the upper hand on oil (and industrial metals, food prices, etc... the necessities of modern life) policy changes to asset market appreciation at all CO$T$.  This includes the things that absolutely croak the non investor classes like food and fuel. 

    If I were a political sort, I would take it further and write that maybe this is the dynamic that creates socialism, because the world of high finance - and its associated official policy making (including, but certainly not limited to those of the current administration) has for so long now (most intensely and dangerously since the age of inflation onDemand began in 2000) been in a mode of fighting declining asset prices, AKA the inevitable result of deflation.

    So, some day out in the future, if we have another QE-inspired revival of the inflation game and everybody's bitching and moaning about fuel and food prices, remember where it was promoted and how we were all on board the inflation express, cheering for commodities and markets to be rescued from phase 1 of what I believe is a new bear market.  We get what we deserve, and what we would probably then deserve is the next lurch toward socialism as the middle class drops down yet another inflationary notch.

    Back to the chart, as gold maintains the recent breakout vs. oil and so many other things of positive economic correlation, gold stock players should be on high alert.  But in a more macro sense, we should all be on alert as to what this potential 'next leg up' means and the policy that is likely to follow.

    That's what this simple picture says to me.

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