"Economic turmoil, not just inflation - although the two may be going hand in hand at the moment - tends to help boost the gold price, with gold as a portfolio diversifier, and there is little indication that the current economic malaise is anywhere near over yet."
"While the turmoil continues, the US dollar, currency of the country which started it all, will likely remain weak, although as we pointed out yesterday other countries' currencies will also weaken as economic instability hits them too which may seemingly help the dollar reverse its decline against a currency basket. But with gold perhaps the ultimate indicator of dollar weakness or strength, its price should strengthen, even as the oil price drops.
"Those who mistakenly perhaps see the oil and gold prices linked as indicators of dollar weakness, may mark the gold price down as oil falls back, but this should be shortlived. Oil should be subject virtually in its entirety to the laws of supply and demand. Gold remains, in our view, in a different category altogether, although not totally immune to supply/demand balance factors."
Historically though, the gold price per ounce to oil price per barrel ratio has been around 10:1. This suggests oil may fall more, or gold needs to rise - or perhaps a combination of the two may be the most likely short- to medium-term scenario.
On Wednesday, July 23, oil fell to around $125 a barrel and gold also fell closing just below $920. If you do the math, you'll see what the next month or two might present when it comes to a reconciliation of that historical price ratio mentioned above.
What might be behind this volatility and the concurrent fall of both oil and precious metals prices ? Market forces, speculation and perhaps some manipulation by the "powers-that-be." Our friends at Casey Research made the following comments this morning:
“Conditions changed as soon as Paulson and Plosser injected a fresh dose of adrenaline into the U.S. dollar with their [recent] comments,” said Kitco’s Jon Nadler.
“We saw oil and the commodity complex undergo a bout of selling on the news, and quite promptly,” Nadler said. “No one wants to fully bet on an imminent rise in the greenback; however, the official statements did manage to overcome the dollar weakness that was seen early in the day [on Tuesday].”
"But for Mark O'Byrne, executive director at Gold and Silver Investments Ltd., it was more about oil.
