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Wednesday, August 3rd, 2011
neck and neck

Since the end of 2001, gold and crude oil (this is Brent) have increased by almost the same amount.  You can see, however, that they got there in different ways.  A few notes:

As with any time series chart on pix or elsewhere, the starting point is key.  To wit:  Had I started this one a few months earlier, on September 11, the results would have been considerably different.  In the wake of the terrorist attack that day, oil went down over forty percent in little more than two months, while gold was off just four percent during the same time.  The change in date would have led to a cumulative move in gold of +475% versus +300% for oil instead of what’s on the chart above.  So, “neck and neck” or any other comparative description is always highly conditional.

The volatility of oil has been greater.  These commodities have moved up together over time, but they have done so in different ways.

Oil is thought of more in macroeconomic terms, with the “peak oil” kicker in play too.  Gold is a unique commodity that is more driven by psychology and fears of monetary debasement than directly by changes in demand related to economic activity.

If you are at meetings with investors, you don’t hear too much about oil as the place to be, but it’s hard not to run into a gold bug.

It seems to me that the next time there’s a significant correction in commodities, it will pay to watch gold.  It went down about thirty percent from March to November of 2008; a similar move could shake out some of the more recent buyers.  On the other hand, if it holds relatively steady while other commodities get hit, it may be quite a “tell.”  (Chart:  Bloomberg terminal.)