An interesting correlation
The mainstream media has drawn a rather interesting correlation between the price of spot bullion and the price of oil. Not a day goes by that the price of oil is directly correlated between gold and silver prices. In fact, this scenario could not be further from the truth.
While bullion and oil are very speculative investments and do correspond in price with the levels of inflation, they are not directly linked. Oil has a much smaller supply than that of bullion. The daily supplies of oil and other commodities are based on the amount produced on a day to day basis, as no real reserve of ready to use oil is traded. Remember, oil is traded with futures, bullion can be traded by means of a futures platform or a spot market.
As the price of oil drops a correlation is drawn between its actions and that of spot metals. Even traders have become privy to this, selling off metals as the price of oil drops and buying marginally only when the price of oil rises. If anything, this sets off a perfect opportunity to buy on the dips in metals when the oil market tanks.
There is no doubt about it, inflation is rampant. The Fed has propped up virtually every financial situation and Congress has taken care of the people in the form of rebates. If anything, the price for bullion should be skyrocketing while oil and other “day to day” investments should be moving based on current supply rather than inflationary concerns.
While inflation does send the price of oil upward it does not affect the oil market in the same way as it affects spot metal markets. Inflation sets long term trends, not the day to day. Oil prices could ultimately be lowered in price by an increase in supply, the increase in metals is yet to be seen even with extremely high prices. A jump in daily production of oil by 1 Million barrels would send a barrel of oil down 5-6%, while gold reserves stay about par.
