St. LOUIS () -- Gold fell $12 today while crude jumped 65 cents. Recent price action continues to show further decoupling from both inflationary hedges. Analysts debate whether the correlation is still tradable.
Dennis Gartman, editor of the Gartman Letter, a long-time trader of this correlation, remains long of seven units of gold and short of seven units of crude oil.
"We've chosen to sit tight with this position, which we've now had on for several years, proving that no one has any idea how far and for how long a trade may progress once a trend is established," Gartman said in today's edition of the Letter.
The gold/crude ratio pushed back above 11 barrels per ounce on Friday and is holding there. It has fluctuated between 10 and 11 since after falling from the multi-year high of 12.53 bbl/oz on .
"Indeed, it is probably a better trade now than it was two weeks ago when the ratio was trading toward 10.5:1," added Gartman.
So far this year, the ratio has averaged about 11.5, up from last year's average of 9.2, but still a ways away from the 36-year average is about 17.5 bbl/oz.
Jon Nadler, analyst at Kitco.com, holds little stock in the historic oil-gold connection on a long-term basis.
"We are the first ones to bring to attention that on a long-term basis, the oil-gold connection is not the strong relationship that some pundits would make it out to be," he said.
However, he added that the recent decoupling among the two inflation barometer assets "is worth watching."
"A short-term de-coupling appears to be unfolding vis a vis the crude oil price as gold continues to track in the opposite direction," said Nadler.
GFMS recently produced studies the point out other gold correlations, mainly the U.S. dollar to euro relationship to gold prices. The consultancy said gold and oil have recently been acting as proxies for assessment of political risk more so than inflationary data.
"Having traded nearly 80% of this year in perfect counter-correlation to the U.S. currency, gold must heed any temporary strength in the dollar with a little more care than it recently has treated the values in crude oil," Nadler said.
The dollar rose against the euro early Thursday in New York, shrugging off higher-than-expected U.S. trade gap data, after the European Central Bank left its key lending rate unchanged at 3.75% and signalled plans for a June rate increase. The Bank of England earlier Thursday lifted its key interest rate to 5.50% from 5.25% as it fights rising inflationary pressures.
Yesterday, The Federal Reserve opted to hold short-term interest rates steady and said nothing that indicates it is prepared to move interest rates anytime soon. The central bank indicated that its target for the key federal-funds interest rates remains 5.25%.
The euro was last trading at $1.3504 from $1.3526 late Wednesday, while the U.K. pound gained against the dollar at $1.9814 from $1.9936.
Gold futures fell sharply by $12.00 to $670.50, extending their prior-session losses, as traders continued to lock in gains and paid no attention to rallying crude-oil prices.
James Moore, analyst at TheBullionDesk.com, said the gold market is lacking some clarity in short-term direction.
He said further consolidation could be on the cards, pegging support at $678-$680 and below at $672-$674, while chart resistance at $694 "remains the main obstacle for $700."
Light, sweet crude for June delivery rose 64 cents to $62.19 a barrel in New York as violence in Nigeria, Africa's largest producer and a leading supplier to the United States, intensifies.
Yesterday in Nigeria, gunmen seized four workers in Nigeria's southern oil region. Chevron [NYSE:CVX] said that the four were subcontractors with U.S. citizenship.
The kidnappings came just hours after militants staged coordinated attacks on three pipelines in the wetlands region, knocking out nearly 100,000 barrels a day of crude oil.
So far this year, gold has gained about 6% while crude has added about 2%.