Gold and Oil: It Takes Two to Contango

Gold and oil reacted somewhat dramatically to the Fed's non-announcement last week, with oil ending up in a classic contango price difference between cash price and futures. But their reactions went in opposite directions, contrary to the old trader's wisdom that precious metals and oil tend to follow each other.

Here at MrTopStep we've been watching gold's drop with interest because a futures price in the low 1300s puts it lower than the stated cost of production, which has been in the upper 1300s. That of course, assumes that the COP is accurate. I was talking about it with a CBOT veteran last week and he laughed hard when I joked, "I'm shocked to think that the mining industry might be reporting inaccurate numbers to the public!"

Whether the gold and oil markets are free and fair ,or not, they are vast and certainly on the minds of the Fed and many others, both investors and spectators. They affect everything we do all day. I'm typing this on an aluminum-body Asus laptop with plastic keys. I'm literally touching petrochemical and mining products which are bought and sold in US dollars. The grapes I just ate include in their price the cost of the fuel needed to bring them up from South America. It's all a web.

As always, use stops and keep an eye on the 10-handle rule. Don't forget to catch MrTopStep on The Closing Print video found under the OptionsTV page (top bar). We report directly from the SPX pits, wrapping up the day and positioning for trade tomorrow.

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