EconomicReason

The correlation between gold and oil since the start of the commodity bull market around 2001 has been remarkable. However, from time to time, that correlation breaks down. There have been four breakdowns so far – first during a mini oil bubble which peaked on August 30, 2005, at $70/barrel, during the first gold bubble which peaked on May 12, 2006, at $730/oz, during the second gold bubble which peaked on March 17, 2008, at $1,031/oz, and during the second oil bubble, which peaked on July 11, 2008, at $147/barrel. In all four  instances, gold or oil decoupled, went parabolic, and crashed.

After all three previous bubbles, gold and oil met on their previous uptrend. In order to get back to their equilibrium after the last oil bubble, either oil should fall to around $90/barrel (given a gold price of $800/oz), or gold should rise to around $950/oz (given an oil price of $115/barrel).

Both ways, in order to move to the upper left, a decoupling of gold and oil must first take place - either oil must fall, without gold falling, or gold must rise, without oil rising. The gold bull market has therefore probably been put on ice until gold can decouple from oil.