$100 Oil and $1000 Gold will soon be joined at the hip.

There are two reasons I believe gold still has much further to move.

Reason one, is that there is a surpising degree of pessimism among gold bulls.

All this week on the CNBC & FOX business channels, gold bulls were talking about the “one sided” trade in the dollar, and how Oil may be in a bubble - both ready to correct,
and both being factors that would bring down gold.

The mood among gold bulls on the internet message boards and on some blogs is also a bit restrained.

While a dollar rally and a collapse in oil would certainly bring down gold - I don’t think it’s going to happen.

Everyone is focusing on this rally in gold and gold stocks as being driven by the Fed rate cuts and a weaker US Dollar.

And it was.

But, it was not the only reason gold is moving. And in my opinion - it is not even the “main” reason gold (and Oil) have been rallying to new highs.

Oil broke out much earlier than did gold and the PM’s. Many will say the move in oil was a geopolitical risk trade on Turkey, or even the US moving into Iran, but I think the move in Oil was more of a currency trade than a geopolitical one.

Oil trades much more freely than does gold.

There are no central banks dumping massive amounts of oil upon the market to cap it’s price, or to silence it’s voice on inflation.

The second reason, and the main reason that I believe gold is going higher - much higher, is the unfolding crisis in the US Financial system that gained momentum this week with Citibank falling 20% and Merrill Lynch’s CEO being forced to resign as a $5 Billion Dollar subprime derivative loss turned into nearly $10 Billion.

Because the financials and the DOW have rallied so far off the August lows - people have begun to believe the BS that the Fed, the Treasury and the Investment Banks are shoveling us.

But, this week - more cracks appeared.

First it was the subprime lenders. Then Countrywide, then Bear Stearns.

Now it’s Citibank and Merrill.

But, the largest shoe to drop may be Wall Streets “golden child” itself - Goldman Sachs.

Reports are now surfacing that a new accounting standard called “SFAS 157″ which forces banks to classify off the books assets into 3 catagories will show that Goldman has perhaps as much as $72 Billion in what is called “level III” assets.

Assets that they still hold at “mark to model” vs. mark to market valuations on their books.

And the reason this new accounting rule is so important, is because if those numbers are correct - Goldman holds $72 Billion of “Enron-esque” assets - and that is TWICE their capital base of $36 Billion.

I wrote a post about it here:

http://goldsilverstockcharts.wordpress.com/category/michael-ceruleans-gold-silver-commentary/

The next driver for gold may be this headline:

“Are Citibank, Goldman Sachs & Merrill Lynch - all bankrupt?”

SFAS 157 may take the market where it’s never been before.

Or, has it?

Can you say?
Enron, WorldCom, Global Crossing…

Michael Cerulean