St. LOUIS () -- So far this year, oil has risen about 5.5% after closing at $60.85 on Dec. 29, 2006. Gold has gained 8.2% after beginning the year at $635.70. Even still, analysts continue to discount the correlation between gold and oil.
"We have opined in the past that there is indeed very little reliable historical proximity between bullion and crude," said Jon Nadler, analyst at Kitco.com.
GFMS recently produced studies that point out gold correlations, saying the relationship with oil has been variable and the correlation coefficient has been low enough to be dismissed.
GFMS concluded that the link between gold and oil "should not be taken for granted."
However, the coefficient reached 23% in 2006, largely reflecting the fact that both gold and oil have been acting as proxies for assessment of political risk.
"The love affair did intensify on the back of surging oil prices over the past two years, but then again, so did that of other assets and indices vis a vis oil," added Nadler.
However, James Turk, founder and chairman of GoldMoney.com, told RI it is irrefutable that there exists a clear relationship between oil and gold.
"Historically, the price of oil averages about 2.3 gold grams per barrel (17.5 bbl/oz)," he said. "Therefore, at $64 per barrel, the gold price today should be closer to $865, based on their historical relationship."
Dennis Gartman, editor of the Gartman Letter, remains long of ten units of gold, short of seven units of crude oil and three units of U.S. stocks.
Five weeks ago, Gartman positioned his portfolio to follow the Dow/gold ratio more closely by buying gold and selling U.S. stocks in equal dollar terms. The Dow/gold ratio is today at 18.51 shares per ounce.
"We'll add to this trade, but not until 18:1 is broken on the downside," he said.
The gold to oil ratio is now at 10.72 barrels per ounce, fluctuating between 10 and 11 since after falling from the multi-year high of 12.53 on . The 36-year average is about 17.5 bbl/oz, with last year coming in at 9.2 bbl/oz.
Crude oil for May delivery was last up 59 cents, or 0.9%, at $64.20 a barrel on the New York Mercantile Exchange. It traded as high as $64.50, its strongest level since April 5.
Energy prices surged by 5.9% last month, the largest one-month increase since September 2005, when Hurricane Katrina shut down Gulf Coast refineries.
Crude-oil futures are being underpinned by worries about problems at U.S. refineries, unrest in Nigeria and declining gasoline supplies ahead of the summer-driving season, according to analysts.
United Sates government data showed gasoline stocks slid 5.5 million barrels last week, far more than the 1.4 million-barrel drop analysts had forecast, due to problems at several U.S. refineries.
The International Energy Agency warned last week that output by OPEC had slid to its lowest level in more than two years on production outages and self-imposed cuts.
Traders are also keeping an eye on Nigeria's presidential elections on Saturday. They're concerned that violence might disrupt oil supplies, which have already been slashed by 20% for more than a year.
Neal R. Ryan, VP and Director of Economic Research for Blanchard & Co., said these energy price increases will eventually begin "feeding through the supply chain," and inflation figures "should begin increasing into the second half of the year."
Gold, on the other hand, is down 90 cents at $693.60 on Nymex today, after closing at a 7-week high yesterday with a gain of more than $20 so far this month.
Geopolitical concerns continue to support the gold market with N. Korea's refusal to shut down a nuclear reactor in order to honour its pact with the West, coupled with the situation in Iran and Iraq, which is also supporting the crude market.
Today, market sources said market participants decided to take some profits ahead of $700 despite the weakness in the dollar.
In afternoon European trading, the pound rose to $2.0064, the first time in nearly 15 years it has breeched $2, up from $1.9900 late Monday; the euro rose to US$1.3593, its highest level since the last day of 2004, up from its level of US$1.3549; the dollar fell to 119.29 Japanese yen from 119.79.
The Labor Department reported today that the closely watched Consumer Price Index rose 0.6% in March, the biggest increase since a similar rise in April of last year.
James Moore, analysts at TheBullionDesk.com, said in an e-mailed update today that gold appears to catching its breath following last week's gains.
"However, momentum is still firmly to the upside with further diversification away from the dollar looking set to propel gold through $700 and on to challenge the $732 high we saw last May," he concluded.