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Gold Bugs Switching to Black Gold?

Commodities / Gold & Silver May 30, 2008 - 01:50 PM GMT

By: Black_Swan

Commodities Best Financial Markets Analysis ArticleI’m beginning to wonder if some of the gold bugs are starting to switch to the dark side (crude oil). Why? Well, gold and crude oil have been very closely correlated on many occasions – mostly due to the long-term dollar bear market. Except right now, amidst surging oil prices (seems like a new record everyday), gold prices are just muddling around with a downward tilt. You know the gold bugs can’t be happy watching things play out this way.


The thing is, the supply and demand dynamic just isn’t as powerful for gold as it is for oil -- thus warranting less speculation on gold and greater speculation on oil. Additionally, as investors have come to accept the current rag-tag condition of financial markets, it seems some of gold’s safe haven appeal has receded.

And we think that’s exactly what the chart is telling us ...

This period of lower highs and lower lows after touching an all-time high of roughly $1,043 an ounce doesn’t bode well for gold. Of course, this could be only a correction after a quick surge to record levels. But this tells us the downside, or the correction, has further to go.

And below is a daily chart showing that the cost of oil per ounces of gold. Oil has been rising steadily relative to gold since the Bear Stearns bailout in mid-March. This is why we believe gold may have lost some of its safe-haven luster.

Now we watch the relative behavior of crude and the dollar!

Jack Crooks

Black Swan Capital LLC

http://www.blackswantrading.com/

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