During 2007 the gold/GYX ratio (gold relative to the Industrial Metals Index) reached a short-term peak during the first 5 weeks of the year, pulled back sharply into the early part of May, and then trended higher over the remainder of the year. 2008 seems to be following a similar pattern in that gold/GYX reached a short-term peak during the first 5 weeks of the year and then pulled back sharply into the early part of May. As evidenced by the following chart, it has just reversed upward.

(chart courtesy of stockscharts.com [1])

We expect the similarities to continue. In particular, we expect that recession-like conditions within the US, slowing growth elsewhere, and widening yield/credit spreads over the next several months will propel gold upward relative to industrial metals such as copper.

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