Dollar Oil inverse relationship

Over the last year or so almost everyone’s been pointing to the inverse relationship between the US dollar and crude oil. In a special issue of Currency Snapshot we included a chart that showed the recent breakdown of this correlation. Here’s an updated chart:

At the very left of the red and grey triangle we’ve drawn onto this chart is where the tight inverse correlation began to break down. That’s when the dollar bounced higher from its all-time low. Crude soared well beyond its record high at the same time.

Crude rallying and the dollar drifting slowly higher simultaneously? That’s certainly no inverse correlation.

But from the furthest right point of that red and grey box is where the tight inverse correlation has resumed. Only this time, the direction is in favor of the dollar. And it comes exactly after a new all-time high for crude prices.

A major turning point?

One of my best sources

Zeall is becoming one of my best sources of analysis.
When I look back to last August, I observe that their timing of the gold market has been very good.

And I also like the way they use correlations to justify their investments.
In particular their observation of the correlation between Gold and Oil has been very influential for me.

And they have a large amount of archive that we can use, and they go back to 2000

Correlation seems the most scientific method and the most successful over the long run.
I still believe in Technical analysis but this is proving ever more difficult to get it right, especially for the short term.
Probably because Psychology gets in the way.

High Up there

Record highs are getting broken everyday with the Gold price.
Yesterday's high was 845. Today's latest price is 838.

Journalists and market participants are wondering : is it going to last ? or how far will it go ?

In the short term, I don't know : markets are so unpredictable.
I know that for sure. As I know now that it is not necessary to predict the future in order to make money.

In the longer term, I am pretty confident that Gold will go higher, just because of its correlation with Oil ,and its inverse correlation with the Dollar and the Stock market.

Two or three years from now, Gold will probably be higher, and that's all that count for my little investment, because this is when my Gold Royalties will probably reap the biggest reward.

I would prefer if it happened earlier because I need a validation of my strategy before the end of the year. But this is irrelevant to the bigger picture.

Right now, I am excited by the rise of the gold and frustrated at the same time because my investment has not followed as much.

When "Peak Gold" joins Peak Oil

A very interesting posting in today's "Seeking Alpha", here

It seems to me that it's a very valid argument in favor of Gold.

Tangible things (and Gold is the ultimate tangible asset ) get more and more difficult to find and extract, whereas intangibles (money, credit and even technology) are commoditized.

The miners, the farmers and maybe even the industrial workers of the world might get some advantages after all.

In the long run, technology is going to be redirected toward real and tangible things, that used to be all important before the dot com revolution.

I remember for example that when we studied Geography (along with History) in High School, we used to examine the natural ressources of a country, along with its climate and lanscapes.

And we could how greatly it determined its economy and even history.