With the global oil price suffering a significant correction in the past week, gold too is showing signs of weakness, but the oil price and gold price should decouple as the one is a commodity and the other "money." At least, that's what some experts think.
Oil prices have fallen around 15 percent since their recent high of $147-a-barrel to a level sufficient to be termed a "correction". The gold price and that of silver has also suffered, but not nearly to the same extent percentage wise, at least so far.
This could be taken as an indication of a beginning of the stealth decoupling of gold from the oil price which would have to happen if gold is to be the answer as a true hedge against inflation and as protection from an economic carnage.
In reality though, oil is a commodity and just like any other commodity it is primarily subject to supply and demand considerations, while gold is, despite the views of some figures in the Central Banking community, a currency. Gold is still ‘money' as far as much of the world is concerned and thus behaves differently from most other metals.
Oil price fundamentals are not supportive of a continuing price surge in the short-run. A very significant fall in U.S. gasoline consumption over the past few months as drivers have been beginning to experience European style petroleum prices, coupled with increased oil output from a nervous Saudi Arabia - and a market which was probably not in deficit anyway - has outweighed developing nation growth.
After al,l the U.S., by some standards, is the world's most profligate oil consumer and a 5 percent fall in gasoline usage there represents more than a 1 percent fall in world consumption. And the U.S. decline in consumption will continue. Gasoline was cheap. It is not now. And if anything will drive the U.S. public towards more economic efficient vehicles, and lower consumption, it is gas at $4 to $5 a gallon.
European usage is also declining as the combination of higher oil prices and soaring inflation is putting a dent in automobile journeys here too - a pattern being seen across the world. According to Lawrence Williams in a recent posting on www.Mineweb.com:
"All this suggests that the overblown oil price is due for a slump - perhaps back to the $100 level or lower, which would bring a collective sigh of relief to those responsible for the economies of most nations around the world. Gold, on the other hand, although it has been seen to be tracking oil of late, should be in an entirely different category as far as investors are concerned.
