This is no coincidence, Buddha. I will summarize a few reasons behind the close correlation.

When OPEC sells oil on the world markets, much of the money they receive is denominated in $USD, since we provide what is nominally the world's reserve currency (this is gradually changing, though, because our idiot savants at the Fed and in Washington believe that a weak US currency will eventually solve the trade deficits and current account deficits we now run, world-wide). These are called "petrodollars." They must be re-cycled. Some of this money buys US Treasuries (and thus helps finance our national debt). But a lot of it buys gold. Higher oil = more petrodollars = more upward pressure on gold prices.

Also, investment demand for gold (including, but not limited to, world bank reserves, large institutional funds, so-called "sovereign" investment funds) increases with higher oil prices, because higher oil prices are inflationary, and gold is the classic hedge against inflation.

Finally, even though gold is in a world-wide bull market against all the G-7 currencies, it is appreciating most rapidly against the $USD, because the trade-weighted $USD is the world's weakest currency. Since both oil and gold are, again, priced in $USD, every downtick in the dollar index is an uptick in both gold and oil.

Cheers.

This is very interesting, Jan. It sounds a bit like the VIX (which you can trade, on the CFE -- you can even buy and sell options on it). The Volatility Index. When folks are fat and happy, it trades around 10 to the low teens. But when fear enters the room, it shoots up to the mid-twenties. Imagine. You can place a bet on market fear. Fear has been in a steady uptrend since March, when the VIX traded at around 12.5. It has been as high as 37.50, on a spike, and closed today at 26.49. This, with the major indexes (S&P, Russell, DOW, Transports, and NASDAQ) fritzing around all-time highs!

You can place a bet on most anything. I suspect that is a big part of the problem. There are derivatives (futures contracts, options, and "custom" jobs underwritten by your favorite bank) to suit your specific needs. Can you say "CDO"? Can you say, "SIV"? Can you say, "tranched debt packages"? Can you say, "credit crunch"? Can you spell, "mischief"? Uh-oh. The Harvard, Princeton, and Wharton MBA's have let their imaginations run wild. "Quantitative Trading" (black boxes, to the unitiated) rules. Why make a decision on your own, which would surely be contaminated by emotion (I always thought a little fear helped keep people honest...)? Gimme an "M"! "M-O-D-E-L"! MODEL! Gimme an "A"! "A-L-G-O-R-I-T-H-M"! "ALGORITHM"!

Don't get me started.

We have become a nation of bettors and hedgers. And thank you, Mr. Greenspan.

Cheers. Get to know your neighborhood liquor dealer. You will surely need him.