Gold-Oil Ratio... Weekly

People may think those of us bullish on gold get overly frothy and excited, but if you knew me you would know that is not the case. In fact, I would rather we lived in a world where we didn't even have to talk about the value of 'munny' and the value of some heavy and pretty stuff yanked out of the bowels of the earth. I run a business that depends on all remaining well with the economy and to tell you the truth, with a backbone-free Fed on the case I am not overly concerned. In fact, I am quite optimistic about 2008, at least in our medical equipment manufacturing niche. So, nor can I expect oil to have some cataclysmic decline. But relative to THE monetary asset, it looks toppy, and that is the final ingredient needed for the gold miners to establish some leverage to the price of gold.

Happy new year.

(Edit 11:39) I have an ongoing email correspondence with a couple pals, whose work you may have read at Biiwii.com/analysis or other commentary sites. The subject of contrary indications in the gold bug community has come up with a friend noting that [They'll] be disappointed with your measley 920 call...most say 1200 by Thursday lunchtime and will blame Cheney, Bennyboy and Paulson if it doesn't get there. In this regard, I am not sure if I have explained that the target of 920-940 is just that, a short to intermediate term target. Beyond that I have no opinion, bullish or bearish because the data is not yet in. In the biggest of pictures - which I'll define as several years out in a secular run - I think gold is going into 4 digits with a 2 as the first digit. But immediately beyond this triangle breakout, I have no opinion.

(Edit 11:59) And a concurrent correspondence...

Claude:

Gary,

That's exactly what I suspected, that you may have in mind a "relative" decoupling" [rather] an "absolute" one. But this is certainly already occurring. When Gold goes up or down by a percentage the other linked assets ( i.e oil, euro) don't move equally in percentage terms.

Similarly in the case of other financial assets, i.e the DOW/Gold ratio has been falling for years meaning Gold has outperformed the Dow.

In terms of "relative" decoupling" I'm with you. But how the hell are you going to make money from Gold falling less rapidly than Oil?.

Claude

Gary:

Here is the how Claude; the gold miners' cost inputs include oil & industrial metals, along w/ human resources. All those inputs have risen in cost during the economic expansion phase and gold did well but underperformed, which negatively impacted its miners' bottom lines. In a contraction or contractionary impulse phase, gold falling LESS than oil, GYX & employment would create margin for the miners. So I would see the metal as a long term 'value' proposition and the miners as a leveraged 'play' on the metal. The miners are where the real action would be if we get the right mix of intermarket fundamentals.