Watch the Dollar for Gold's Cues

Market analysis requires a combination of detective work, an understanding of numerous economic and financial rules and relationships, and perhaps most importantly, the ability to throw everything aside when all of your past training and experience fail. For example, take the relationship between bonds and crude oil prices over the past three months: On many days, both markets rose together on the notion that higher oil prices would slow the economy sufficiently to keep a lid on interest rates.

Even for one who has argued for more than two decades that this was the proper relationship, the irony of seeing the old shibboleth turned on its head was a little disconcerting. Even when I believed the market had the relationship wrong, I chose to go with the stampede in the interests of self-preservation. Besides, who would hear all my tut-tutting over the hoofbeats? The gold market is another situation where the wrong relationships are emphasized. But a review of commonly consulted indicators shows that a surprising proxy works best, and points to the need for a new way of thinking about factors that affect this commodity.

Where Does Gold Belong?

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