Personally I don't think there is much interconnection. My trade on oil was based on the entire suite of ratios in that post I put up. Important commodities in my opinion can not get out of kilter with so many other important commodities and financial indicators for very long unless there is some sort of disruptive structural change (root cause if you like that changes the demand for that commodity forever or forever in any practical sense). When I say out of kilter I mean those ratios I put up in my charts will all eventually try and move back to some longer term average line (middle line) and those are the trades you should try and look for. The thing is if you look at the charts I made the peaks look sharp but on closer inspection they take a minimum of many many months to years to play out.
Take iron ore for example. For decades and decades its price hardly varied and the price paid in countries like Japan and Korea was little above the cost of digging it up and transporting it to the various ports where it was need. Along comes the China boom which many experts were claiming was structural and there to stay so we ended up with massive investment (over capacity) in iron ore mining and steel making based on this false premise. The reality is that China was undergoing an amazing and rapid economic realignment but the commodity boom was actually driven by the forces of money that lay behind the boom. Those forces were a distortion and resulted in so much excess steel making capacity that now it will never all be utilised so eventually all that steel that went into making more steel mills than the world needs will find its way into the already huge Chinese scrap steel overhang. Consequently the price of iron ore will remain depressed for a very long time and move back towards its very long run price. ie a price not very far above the cost of digging it up and transporting it to the ports where it is required. ie it will go back to being a high volume low margin business. If you can think of an argument to link gold to oil or anything else I'd like to here it. I've got a theory on the price of gold but too late and too hard for me now. Eshmun
