Oil/Dollar/Gold - relationships

[Sharkfin]

Hi all
Could anyone recommend a book on understanding the relationship between oil/dollar/gold/interest rates, etc?
Thanks

 

[de123]

no...,....but there are quite some relations,...So far i get next corelations:

When oil was 78 and have gone down,...it lead the gold down, and dolar up, till elections, after elections in usa,...the main fundamental indicator was changed and was not oil anymore, but it still is the election thing,....so dolar went down, oil was defended by OPEC,...and gold made a strong push, together with dolar down and opec it had pushed oil to 64 level, where both dolar and oil pull back to 61 and 1.31, which pull back the gold to ...dont know realy....if i am wrong please correct me.

And it happens, quite offen in european session, that eur/usd and oil move in the same direction,...and when euro or dolar news are published it move the oil futures,...so i dont know if the liquidity comes from oil vs currency or are the ppl mind corelating the move....or is it both.

 

[Atilla]

no...,....but there are quite some relations,...So far i get next corelations:

When oil was 78 and have gone down,...it lead the gold down, and dolar up, till elections, after elections in usa,...the main fundamental indicator was changed and was not oil anymore, but it still is the election thing,....so dolar went down, oil was defended by OPEC,...and gold made a strong push, together with dolar down and opec it had pushed oil to 64 level, where both dolar and oil pull back to 61 and 1.31, which pull back the gold to ...dont know realy....if i am wrong please correct me.

And it happens, quite offen in european session, that eur/usd and oil move in the same direction,...and when euro or dolar news are published it move the oil futures,...so i dont know if the liquidity comes from oil vs currency or are the ppl mind corelating the move....or is it both.

Oil - Gold - $

Starting with basics this would be my understanding...

Oil is a commodity - Input in production - hence Supply and Demand -
+ve relationship with economic activity.

Gold is a commodity and investment - hence a little more complex to analyse -
+ve relationship with economic activity - fashion and global risk

$ is a rate of exchange with other currencies - hence
+ve relationship with B of P Surplus - ie Exports > Imports

ie If geopolitical tensions rise so does oil and gold.

Gold has risen because global risk has risen.
Gold has risen because China and other countries are diversifying out of $ which has been falling.
Gold has risen because Iran was buying a lot of it preparing for possible war.
As tensions fall so does gold.
Gold partially dependant on economic activity but more so on risk and fashion is a driver of gold.

Oil is purely economic activity and global risk. Ofcourse supply and demand, hence if they find new oil fields or reserve figures change or cartel meets to cut supply will shift price etc etc.

The $ is determined by real interest rates and Balance of Payments and Budget Defecit in the US. Economic activity and inflation are in these relationships also.

Another complication is the oil is traded in $ollars hence if oil goes up demand for $ollars likely to go up.

Observation, although oil may have touched $77 the rise in the £1.90+ againts $ means UK benefits from relatively stable oil price against other countries whose currencies may fall againts the $.

I hope it makes sense.

 

[TWI]

Oil and gold is priced in dollars on international market but these commodities trae globally in local currency. Most important relationship is dollar to other currencies. Gold has direct and inverse correlation to dollar.
Oil trades its own fundamentals but has a similar but less direct association to dollar exchange and more to supply demand. However when oil is getting batted about gold will have a correlation with it as will most of the commodity complex.

 

[Atilla]

Oil and gold is priced in dollars on international market but these commodities trae globally in local currency. Most important relationship is dollar to other currencies. Gold has direct and inverse correlation to dollar.
Oil trades its own fundamentals but has a similar but less direct association to dollar exchange and more to supply demand. However when oil is getting batted about gold will have a correlation with it as will most of the commodity complex.

What is the mechanism for the direct and inverse correlation between gold and the dollar?

Similarly between gold and oil?

 

[TWI]

dollar strong gold down, dollar weak gold up for most part and certainly recently rather close.
Gold and oil both exhibit this relationship but gold more so as it is currently trading as a currency more so than oil which is also very much influenced by short term fundamentals that relate directly to its own supply demand such as OPEC issues. However if oil makes large move then there tends to be contagion effect across commodity complex as flows move in or out of the sector as whole.

 

[Atilla]

dollar strong gold down, dollar weak gold up for most part and certainly recently rather close.
Gold and oil both exhibit this relationship but gold more so as it is currently trading as a currency more so than oil which is also very much influenced by short term fundamentals that relate directly to its own supply demand such as OPEC issues. However if oil makes large move then there tends to be contagion effect across commodity complex as flows move in or out of the sector as whole.

I'm sorry TWI but what I'm trying to understand is why does Gold :arrowd: when $ :arrowu: ?

What is the reason? Is it because people switch assest / investments? Is it speculative or is it economic? Having observed the correlation I would ask why how etc?

Similarly for gold and oil.

It would also be interesting to find out if $ falls by X %, Gold rises by Y %. What is the magnitude of this relationship?

I'm trying to understand the mechanism for these relationship feeds cause and effect lags etc.

 

[TWI]

The reason for this is that gold demand is not pricing in dollars. For example in Japan they look at Yen price of gold and if you chart gold in Yen you see a different picture. So if dollar rises in value then gold becomes more expensive in local currency terms in the demand countries. This is why gold comes off when dollar strengthens and vice versa.
The relationship is not exactly quantifiable as there are other factors which are fundamental to gold that may move it outside of the dollar moves, this includes volume of trade as gold is not as liquid as the dollar fx cross. Anyway, it would be of little value as in theory dollar is no easier to predict than gold. I notice gold tends to follow dollar rather than lead it which makes sense.
Same goes for oil and all commodities, World is not only pricing in dollars and very often demand is paid for in local currency so there is always fx to consider in these products.

 

[de123]

its true,..if oil goes up,...it usually push other comodities,...maybe because the money making machine is programed to get the liqudity,... maybe because of the hedge funds psiho policy (and ours) like higher oil,...higher expenses,...and in forex there is a posibility to trade AG/usd and au/usd,...that means its traded contradictory,...which exaplains the move in the oposite direction,...today oil went up,...which helped pushed the eur/usd and gold up...i dont believe that german positive news helped pushed the euro from 1.3060 to 1.3200,...thats oil to me...

 

[Atilla]

its true,..if oil goes up,...it usually push other comodities,...maybe because the money making machine is programed to get the liqudity,... maybe because of the hedge funds psiho policy (and ours) like higher oil,...higher expenses,...and in forex there is a posibility to trade AG/usd and au/usd,...that means its traded contradictory,...which exaplains the move in the oposite direction,...today oil went up,...which helped pushed the eur/usd and gold up...i dont believe that german positive news helped pushed the euro from 1.3060 to 1.3200,...thats oil to me...

Sounds like cause and effect wrong way round to me.

If confidence goes up
If inflationary pressures go up
If economic activity looks like it's going up
Commodities goes up oil + others.

If not, how does oil going up in price affect the $ falling? People are saying it's either inversely or proportionaly related about these observations without explaining the mechanism.

I think you'll find it's the inflationary pressures (PPI and Core inflation results) that took the $ down today.

$ falling takes the gold up in my opinion coupled with increased economic activity and talk about the emerging markets and China continuing to grow in 2007.

The Fed is still quite about interest rates rises.

 

[de123]

ok....thats something like near reality...listen to my version,...when someone says that the country is adicted to oil, and if that someone is the president of the country which has ocupied the country with the most quality oil,...and if that president do not got intention to witdraw trops even if he lost the congres, senate and house of representative,....then i strongly believe that this is all true....so if country is adicted to oil,...then it is their currency adicted to oil,...as well...period....if he says,...then thats how it is....

some trade usd/cad to trade oil....so it is so complex...and relative...u never know,...sometimes i wonder if i buy oil,...if i buy euros and sell dollars and if the liqudity isnt enough,...then someone is selling me the gold...or vise versa...

and if oil contracts are being expired,...that is a fresh buy next contract, if opec declared to cut production starting in that month....and that was done so sharply that it moves the whole market .... and the most trading comodity in present is oil....that can not compare if some curency contract or other comodity do expire...that will not effect other market so much, maybe not even by penny...everbody trades by his means,..and that push the market as a whole to whatever direction...the only thing we must do is not to trade like minority believes but how majority......if something is fresh ofcourse....and if it is defended by fundamentals,...and if support ws yesterday at 61.66 and next support 61.56 & resistance @ 63..., then this will push the dolar and other comodity to next level of resistance...its all about energy...so far,...even this winter is the result of global warming mainly because of expanding the demand for energy...

 

[TWI]

I think oil will find support around these levels, it does not appear to want to go down much more.
As for gold and silver, into next year I feel pretty confident about their upside prospects.
The US has just experienced one one of the greatest pump and dumps in financial history, and also one of the greatest wealth transfers from the middle classes to the pig men.

 

[lavag]

Hedge to inflation

Also, gold (and to some degree other commodities including oil) are a natural hedge for inflation. Given that all the world's major currencies are now off the gold-standard the $ is not now as secure as it was - it was seen as the bedrock of global economy, with the US able to use its productivity to produce its way rom debt. But it seems unlikely that the fed can print its way out of a BP deficit indefinitely (read Empire of debt for quite a pessimistic view).
Also, a big looming FX story is the re-pegging of the Renembi, which is likely to happen (according to some) within the next 12 months. These uncertainties are propping up the price of gold and to some extent other commodities.
I agree that oil (the price of which is a huge part of inflation - so therefore is positively correlated to gold and other commodities) is more a leading indicator with incidents in producing countries such as Saudi and Nigeria and OPEC incidents directly pinching supply and weather in the US, among other things, directly effecting demand. This last point is a slight oddity in my view: global warming is nature's buffer to a higher consumption of heating oil (similar to the La Chatiliers Principle, for the chemists among you).

 

[vergis92]

I'm sorry TWI but what I'm trying to understand is why does Gold :arrowd: when $ :arrowu: ?

What is the reason? Is it because people switch assest / investments? Is it speculative or is it economic? Having observed the correlation I would ask why how etc?

Similarly for gold and oil.

It would also be interesting to find out if $ falls by X %, Gold rises by Y %. What is the magnitude of this relationship?

I'm trying to understand the mechanism for these relationship feeds cause and effect lags etc.

As dollar falls the price of oil (in dollars) goes up to offset the drop, a country using euros will not notice such a typical
rise in the cost of oil since the cost is in USD which has just
become cheaper against the Euro...
these inverse relationships work sometimes one way,
A can affect B very fast but B won't affect A... due to many
factors involved don't try to fugure out an excact formula or
ratio, such a perfect relationship doesn't exist, it's just common
sense somewhere down the line,

 

[Mr.J-Arthur]

I'm trying to use the EURO/USD cross to guage the gold market too.
Before I get in a gold trade I decided that i will always check the currencies to get extra perspective on gold. Sometimes gold is a drama queen that has emotional outbursts lol.