Oil-Gold and Other Uncorrelated Trades

"A woman without a man is like a fish without a bicycle." -- Gloria Steinem

Neophyte futures traders in the 1970s were told to trade silver off of soybeans, or vice versa, depending on who was doing the mentoring. Both were seen as representatives of the inflationary scourge then upon the land. You certainly would not hear that today. The paths of the two commodities separated long ago, and for good reason: They are completely unrelated.

The subject of the relationship between crude oil and gold arose during a Columnist Conversation last Friday. I offered a number of reasons for why crude oil and gold should be treated separately. One of the most powerful, surely of interest to market technicians, is the long-term ratio of the spread: Its very history provides the best reasons to ignore it.

Laws of Attraction

The chart below depicts the ratio of the weekly average of cash gold expressed in dollars per ounce to the weekly average of cash West Texas intermediate crude oil expressed in dollars per barrel. The history chart begins with the advent of crude oil futures in 1983; this assures us the underlying prices are the result of market-based decisions. ...