Gold vs oil

The precious metal should outperform oil going forward.

If you have to make a choice, what would you buy "� gold or oil? It's a tricky question isn't it?

Both are important. One is the real value of money and the other the reason we go to office. Short-sighted thought, considering the role of oil for emerging markets.

But still, staying at home can do wonders for the oil industry. The Internet killed the telecom industry and it's now getting ready to save the world from the oil gap. We love the Internet.

Coming back to the tricky question, so what would you buy? It gets trickier when you realise that though one of the asset drives the energy sector and the other the metals and mining sector, but still both commodities move in sync.

Strange connections you only see in commodity markets, but never feel them in related stocks. Maybe we never looked for inter-linkages there, balance sheet analysis takes all the time.

Oil and gold are so much in sync that if you removed the y-axis from the chart, you cannot differentiate one from the other. Oil bottomed a few months earlier in 1999, and gold bottomed in 2000. Now, we have it again. The 2006 top was again separated by a few months. Well despite all this symmetry, intermarket analysis gives us valuable insight.

Gold trended up by 200 per cent over the last six years, while oil moved up 770 per cent. The oil outperformance was clear. This was in sharp contrast to the period from 1990 to 2000, when gold outperformed oil for a similar time period.

Current intermarket situation seems skewed in favour of gold, as its the underdog of multi years. So it's 'Long gold, short oil' strategy.

And if gold also falls, as we expect it to ease more from current levels, oil should fall more. The MCX Energy Index has been in a free fall since August 2006 and it seems there is more to come.

Key resistances lie near 2400 levels. And MCX Gold respected our anticipated resistance at Rs 9,300 since our recommendation in December 2006, and still seems to be pushing lower.

Key levels lie at Rs 8,600. Below Rs 8,600, it should hit Rs 8,200. Oil in any case might fall more compared to gold. This might surprise oil bulls, but that's the way it is, strange things happen with the Internet.

The writer is CEO, Orpheus Capitals, a global alternative research company