SwingTimer

Predicting Oil Prices Through Gold

The only thing that gold and oil seem to have in common is that both are priced in US$ - hardly a basis for assuming a meaningful relationship between them.

The value of gold is determined largely by its perceived "safe-haven" end-of-the-world characteristic as a defensive "store-of-value" - something which is very real and useful in the minds of most gold investors, I suppose.

Oil, by contrast, is one of several crucial input components to modern economic activity - what you could call a "facilitator" / "creator-of-value" with respect to such vital functions as manufacturing (plastics, etc), transportation, etc.

Thus, one has been and likely will remain a largely static and emotional prop, while the other has been and will remain for the foreseable future an essential that "greases" the wheels of modern prosperity (notwithstanding the advent of alternative energy sources).

Let's remember that correlation is not equivalent to causation. Thus, the use of "correlated" assets in making investment decisions should not be given undue weight. And this is especially relevant when you consider, as pointed out by Richard, that the ratio of gold to oil has "shifted" dramatically between the 1990s timeframe and the more recent 8-9 years.