Oil Looks Ominously Like Gold Trade
NEW YORK (TheStreet) -- Oil is going through another major change in the way it's being traded: It's acting less like oil and more and more like gold. And believe me when I tell you folks, oil that trades like gold is not a good trend to be noticing. It has the potential to create the last headwind to an already slow economic recovery and sink us into a true double-dip recession.
I've spent much of the last three years describing how oil price responds less to supply and demand and has instead turned into a capital market not unlike stocks and bonds, where price is determined by financial influences of speculation and investment. In my book, Oil's Endless Bid , I argued that oil, which has been far more volatile and expensive than it otherwise should have been, was a major factor in the economic collapse of 2008 and is holding back progress to our recovery.
That's because oil is such a critical component to the economic health of both business and consumers. It is universally detrimental to have oil acting more like stocks and acting less like, well, like oil.
But recently I've seen a new layer of money begin to chase oil -- with a different motive than the previous investor desire to add to the diversity of their stock and bond portfolios. Now, it seems more and more apparent that oil is being used as a safe-haven trade, in the way that previously only precious metals and the Swiss franc have been used. Oil has begun trading more like gold.How else can you explain oil's recent price action? We've had a very strong and very destructive correlation between oil and stocks particularly since 2008, but in recent days we've seen the stock market sink 600 points, while Brent crude continues to price close to $117 a barrel. This has occurred despite horrid GDP and durable goods numbers as well as unemployment and housing slowly getting worse. Despite all this bearish news, oil just refuses to go lower. Investors seem to have found another "Armageddon trade" to hedge their faltering portfolios --oil. Investors can't take delivery and store it, but they seem more and more willing to diversify their precious metals holdings with financialized "black gold."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV