Monday, December 22, 2008

Is Gold Decoupling From Oil?

Gold and oil prices historically move in tandem.

But today's market moves show some interesting divergence from that pattern:

  • Oil closed down $2.45
  • But gold closed up $9.80

Why?

Well, MarketWatch explains the fall in oil prices by saying:

Crude-oil futures fell Monday to below $40 a barrel as demand concerns outweighed news that the Organization of Petroleum Exporting Countries could cut production further.

On the other hand, MarketWatch said "Buying of the metal as a safe haven against the ailing economy returned."

One day obviously does not make a trend.

But it will be interesting to watch whether today was the beginning of an unwind of the traditional link between gold and oil prices. If so, it will be because worldwide deflationary pressures (at least before runaway inflation kicks in) and a reduction in demand are leading to lower oil prices, while a rush to safe haven investments is pushing gold higher. One trend for oil, a different one for gold?

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