Price Correlation

Commodity market analysts have been analysing a lot on whether there exists any relationship between prices of gold and crude oil.Many price movement studies have already shown that the correlation between these two is really strong.In other words when price of crude oil goes up price of gold goes up and vice versa.However studies show correlation between the price of these two is somewhat fluctuating in nature comparing the price study in different decades starting from the 70's.The basic problem is that no sound hypotheses have so far can be established depending upon this price studies.



For a common trader who want to get a profit depending upon this gold-crude oil price study he must be careful enough with the other fundamental factors influencing the market.Demand supply is the basis of all price fluctuation with relevant factors taken together such as geopolitical factors,reserves and their utilization,OPEC decisions and currency market fluctuations etc.Gold in a way is inversely related to U.S Dollar. i.e. when gold goes up US Dollar tends to come down  and reverse happens when Us Dollar goes up. This can be explained with the fact that whenever US dollar shows a downward tendency(you may term it as inflation) Investors starts investing in some safe haven like Gold.Obviously Gold always is safe haven for investment.



Supreme of all the factors drives the markets is mass psychology.No greater factor can influence the market than human being itself who invented the mechanisms of future market.God have woven the web and got himself spun by the threads.Perhaps therefore we are searching for some tools which can fetch some reward out of market designed and made by ourself.So many correlation exists between the prices of so many commodities,indicators and indexes.Basically all the products of money market commodity market or share market are interrelated in a way or other.So whenever a trader is going to invest in a particular script in share market he should check not only the balance sheet of that Co.but the US Dollar movement,political factors influencing the economic conditions and resource and their utilization processes.This evidently will fetch him a long term profit.In case of gold and crude oil whenever a trader is going to take a buy/sell he must keep in mind the US Dollar price,USDX movement and obviously the OPEC decisions relating to output and price hikes.



So price correlation is just one of many tools investors must deploy in making informed decisions.Today's gold bull era influenced by world recession starting 4 yrs back have so far overwhelmed the market.This was evident.After bottoming out in 2001 gold in this decade was gaining strength enough to make this bull era possible. Crude on the other hand having a limited global reserve could have been triggered to an abnormal high had OPEC not discounted the risks relating to higher production.So in conclusion we can say higher oil price provide economic sluggishness and consequently according to  the gold- US dollar inverse relationship Gold price goes up abruptly in last 4 yrs.Obviously recession triggers slower production which evidently makes supply disruption to cause oil price goes up.