GLD) and the United States Oil Fund LP ETF ( USO), have seen some extreme moves in the last few months. But while the moves so far have been near mirror images of one another, improving data out of China suggest that valuations in these commodities will start travelling on a more similar trajectory. As the world's second-largest oil consumer, China and its growth in demand are a big driver of energy prices. This year, China is expected to overtake India as the world's largest consumer of gold, so improvements in the country's central manufacturing space also will have a significant effect on metals in the fourth quarter. Of course, the pickup in Chinese data is only one factor to consider when we look at the prospects for gold and oil. Short-term rallies in both assets have been driven by escalating Middle East conflicts, stronger physical demand in Asia and increased volatility in currency markets. At the end of June, gold hit its 2013 low at $1,212 an ounce. Prices have since rallied 15%, but this still falls into bear-market territory (one that would require a bull rally of 20% to overcome). Earlier in the year, gold's allure as a safe haven was offset by a steadily improving U.S. economy and historically low levels of inflation.
But these trends could see additional changes, once the Federal Reserve announces plans to cut back its monthly asset purchases. The prospect of reduced stimulus is a clear negative for stock markets, which are inversely correlated to gold's price fluctuations. Thus any decline in equities would send large sections of the market looking for an alternative store of value, and this would leave gold looking more attractive than at any other point this year -- especially given the cheaper valuations that are now in place.