Moving up together: Gold and Oil

Spot gold compared to WTIC Oil, February 1st to February 23rd 2012

So far in February both Gold and Oil (there are several different grades of oil, here I’ve chartered WTIC, or West Texas Intermediate) have moved almost in lockstep, with a five day correlation of 0.89 compared to a negative correlation in January. How significant is this? Well, from January 1st 2001 to December 31st 2011 the five day correlation between the two assets was only 0.49. But we have seen periods such as 2008, when oil prices hit a high of $145 a barrel in July, the same year gold also hit new, near term highs as well. The five correlation between the two assets in that period strengthened to 0.90, meaning we do see periods of time when US Dollar based commodities (e.g., gold & oil) simultaneously push to new highs.

I still think there is some room for gold to advance. We’ve had very solid returns so far in 2012, the third best January on record in fact as well as an excellent performance so far in February.

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