Oil Down, Gold and US Dollar UP?

Today I got an email from a good friend referring me to a very nice website with an interesting view on oil, gold, and the US dollar: http://biiwii.blogspot.com/   "Biiwii" means "but it is what it is",which is the blogger's motto, and  refers to the fact that as traders and investors we need to accept what "is"  as a fact, and not moan about or try to contain or control the market....as if we could. Good advice. The thesis of the current post is that the gold/crude oil ratio is breaking out upwards--clearly true this week--and that even if gold goes down in price, and oil falls quicker,or more in price, gold stocks and the US dollar could go up together.

At first I just couldn't get my mind around this concept except possibly that if oil is going down the "hot money" would move to gold and pump it up. But I didn't see how the dollar would benefit from that ratio per se. So I looked around a bit more through "biiwii's" posts on gold and found this interchange with a reader on December 31:

"Gary,
That's exactly what I suspected, that you may have in mind a "relative" decoupling" [rather than] an "absolute" one. But this is certainly already occurring. When Gold goes up or down by a percentage the other linked assets ( i.e oil, euro) don't move equally in percentage terms. Similarly in the case of other financial assets, i.e the DOW/Gold ratio has been falling for years meaning Gold has outperformed the Dow.

In terms of "relative" decoupling" I'm with you. But how the hell are you going to make money from Gold falling less rapidly than Oil?"

Claude"

"Here is the how Claude; the gold miners' cost inputs include oil & industrial metals, along w/ human resources. All those inputs have risen in cost during the economic expansion phase and gold did well but underperformed, which negatively impacted its miners' bottom lines. In a contraction or contractionary impulse phase, gold falling LESS than oil, GYX & employment would create [a positive] margin for the miners. So I would see the metal as a long term 'value' proposition and the miners as a leveraged 'play' on the metal. The miners are where the real action would be if we get the right mix of intermarket fundamentals."

This explains what you see in terms of metals stocks:  more or less a fundamental look at gold miner's costs, which certainly have been negatively impacted by oil prices and would benefit from falling oil prices. I guess where the USD would come in is in looking at the US economy as a beneficiary in the same way that gold mining is."

That is doubtless true as the import prices showed today. This is from Brian Wesbury today:

"Exports increased $0.6 billion in November and are up 13.0% versus last year. The increase in exports in November was led by services. Imports increased $6.0 billion in November and are up 11.4% versus a year ago. Petroleum accounts for most of the increase in imports in the past year. Excluding petroleum, imports are up 5.4%.

The trade deficit is up $4.7 billion versus last year. By region, the largest expansions in the trade deficit have been with OPEC ($5.0 billion), Mexico ($2.0 billion), and China ($1.0 billion)

So gold miners and the USD could both go up together with oil falling. 

Interestingly, John Hussman http://www.hussman.net/index.html also says that gold and the dollar can go up together in a recession during inflationary times simply because inflation doesn't stop until midway or further into a recession, but the dollar is already anticipating recession. Hussman loaded up on gold miners (for him that means over 20%) in his HSTRX fund about a month ago, if I remember the timing correctly, and it has paid off. He thinks a recession is coming soon if not already here.

In a disinflationary era recession (1980's-1990's), of course, gold would go DOWN and the dollar would go up more. So perhaps there are several reasons for a decoupling of gold and oil with the dollar benefiting... both of the ideas are intriguing, and that's certainly what has happened this week.

Biiwii's and Hussman's ideas are examples of "outside the box" fundamental or economic ways of looking at short to intermediate term investing. Technical analysis is still the Sherlock Holmes way of finding the footprints of the market. But there may be a "CSI Wallstreet" alternative or supplement.