Aside from Saville's enlightening look at gold stocks potentially rising after the initial leg up of a USD rally, we take a look at the GOR's relationship with the Dollar and realize that this is the environment where the precious metals stocks stand to gain bottom line advantage as gold outperforms commodities that represent some of their cost drivers; commodities that depend on global growth and in some cases, bubble dynamics.
Here is the GOR w/ USD and also for good measure, a chart of the GSR w/ USD. The Dollar has been on board with the GSR since the contraction festivities became widely recognized in August '07. Oil meanwhile got a little out of control as casino patrons piled into the most headline worthy play. But the trend is toward seeking liquidity during this contraction, not toward growth assets. I expect silver is near a good bottom but it should under perform gold in the big picture as it benefits more in a growth environment. Ironically, in the short term the gold miners are probably looking toward a rally in their cost driver, oil, and silver to out perform gold before they rebound. In the longer term the oil correlation needs to be fixed or I will no longer be a secular style bull.
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