“This is little doubt that the dollar’s purchasing power and credibility will be severely undermined, and that gold will therefore run higher with a significantly higher oil price. This change in sentiment could be sudden and dramatic.”
Paper bulls of gold and silver may be down in the dumps, but there’s a quiet evolution in progress. And this is now evident in the relationship between gold and oil over the last three months:
After oil’s peak last April, the price started a bottoming process in July, as did gold. Both then rose, not entirely synchronised, but roughly together with gold achieving its high point at end-August and oil three weeks later before both declined to recent lows in the last week.
This action questions the macro view which argues that higher oil prices lead to higher inflation and therefore interest rates, raising the cost of holding gold. But on examination this argument doesn’t hold water.
Why is this?
