To others, however, divergence in the gold and oil price trajectories are tea leaves that, when sifted, portend the future. Our September 29 podcast was devoted to explaining the import of bottoming in the gold/oil ratio. The ratio tracks gold's purchasing power expressed in barrels of oil. Bottoms have been predictive of the last five U.S. recessions.

The, um, bottom line is this: Bottoming ain't good. Well, not so much the deck scraping itself; it's really the implications of the rebound that are dire.

The bounce in the ratio from a historic summertime low around 6.5 reflects more oil's decline than gold's resurgence. More on that in a moment.

Spot WTI oil futures are off 7.3% for the year, while gold, measured by the London morning fix, is up 9.2%. Oil, of course, is a bellwether of industrial and consumer expansionism. Falling oil prices reflect waning fuel demand as noted in yesterday's Energy Department report (see "More Off-Base - WAY Off-Base - Oil Forecasts"). Gold, meantime, has been crisis medicine, prescribed for capital in need of a safe haven amid the current financial tumult.

The ratio hit the 10.3 level Wednesday, just shy of a momentum crossing level reached in June 2007. A breakout above the 10.4 level could set up a test of the 12.5 high reached in January 2007.

Gold/Oil Ratio

Trading the ratio is relatively easy through futures. Just buy gold futures and sell oil contracts short. Trading the ratio with exchange-traded funds and without margin is tougher. There's only one inverse oil product extant domestically (though there are more in registration according to "Plenty To Choose From In New Filings").

The MacroShares $100 Oil Down (AMEX: DOY), featured in "Summer Oil Check," gained 19.4% since July 22, while NYMEX spot futures dipped 30.7%. London gold gave up 6.1% over the same period, mirrored fairly closely by the SPDR Gold Shares trust's (NYSE Arca: GLD) loss of 5.9%.

If you want to trade the ratio from here, keep in mind that you're likely to only get some of oil's downside from DOY, but you'll get nearly every penny of gold's movement from GLD.

Gold/Oil Ratio Through ETFs