As Stifel's Barry Banister explains, Gold vs. oil symbolizes the struggle between reflation (oil up) vs. deflation (gold down).
Gold is an alternative to Fed “money.” If Fed money rises in value, gold deflates.
Conversely, oil is a global GDP-commodity (although WTI, shown below, is depressed by U.S. production).
We believe the gold-to-oil ratio (GOR, gold/oz. divided by WTI oil/bbl.) is “deflation relative to reflation."
If GOR reverts to its average of 16x from 28x now, either gold falls symbolizing deflation, or oil rises symbolizing reflationary traction... or more simply oil outperforms gold (which may explain the extreme correlations that are evident on any major move in one or the other of these assets)
Positioning among the leveraged community remains extreme in both...
Charts: Bloomberg



