"...If you want to hedge yourself against oil, buy oil. Don't mistake it for gold..."

WHATEVER happened to gold as a "safe haven"?

"The British sailors are free. They can go back to their families," announced Iran's president Ahmadinejad at a press conference on Wednesday, just as New York was about to open for business.

Gold promptly leapt - only in the wrong direction according to most pundits and commentators. It gained $10 per ounce to reach fresh one-month highs above $674.

What gives? Shouldn't gold fall on good news...and rally only on news of misery and destruction? Read most analyses of the gold market today, and you'd think that a "terror premium" should be built into the price.

Only now, with 15 smiling faces beaming out of the world's TV screens, it isn't.

"Gold [has] gained 1.9% since March 23 when the Britons were captured," said Bloomberg earlier, trying to find some kind of link.

"You've got the rhetoric in Iran and investors are turning to gold," reckoned one New York trader ahead of Wednesday's move.

"Something odd's going on in the gold market," muttered one attendee of the GFMS Gold Survey 2007 launch in London, right around the time Ahmadinejad said he would release the British sailors.

"Oil's up, Iran's holding British service personnel hostage, the Dollar's down...and yet gold hasn't risen nearly enough."

Nearly enough for what? There's no law of the universe that says gold must always move in the same direction as oil - nor by the same percentage. Indeed, as Philip Klapwijk, chairman of the widely respected GFMS consultancy, observed at the launch of the 2007 gold survey today, the daily correlation between oil and gold prices fell to precisely zero in the first three months of 2007.

"There's a positive correlation with the GSCI and CRB commodities indices," Klapwijk went on, "but it's too weak to be significant."

So what did drive gold higher at the US open? Oil dropped 1.3% on the news from Iran. Spot gold prices, on the other hand, leapt as the US Commerce Dept. and Institute for Supply Management both reported much weaker than expected economic data.

US factory orders for Feb. came in way below expectations. Wall Street was looking for 1.9% growth versus the 1.0% we got. And outside manufacturing, the ISM purchasing managers index also disappointed, coming in at 52.4 for March versus 54.3 expected.

Yet if the data suggest lower Dollar interest rates ahead, you wouldn't know it from the foreign exchange markets. The resulting spike in Euros, Sterling and Yen versus the Dollar was nothing compared to the move in gold. The Pound gained only half-a-cent to $1.9766, while EUR/USD rose less than 0.3% to $1.3380.

Yes, a cut in US rates may well conflict with a further rise in UK rates - widely expected for Thursday this week and already priced into Sterling. And yes, the gap between US and Eurozone interest rates will shrink every time the ECB in Frankfurt takes another baby-step towards fighting inflation in Europe.

But what's beginning to matter most to the global investment industry isn't the mere basis-point profits it can clip selling Yen to buy Dollars...or selling Dollars to buy stocks. Easy money only makes sense when you trust the money it pays. And now, as 2007 unfolds, investors are increasingly questioning the value of money - measured by the real risk-free return paid by cash in the bank. It looks certain to shrink further. The trend began back in the fall.

After 17 rate-hikes by the Federal Reserve, US Dollars paid scarcely 2.83% above CPI inflation (and before taxes) in Feb. according to the official data. That's down from an 8-year peak of 3.94% in October - a huge reversal given that the Fed has yet to cut rates - and only just above the quarter-century average of 2.50%.

Which way now? Gold has become ever-more data sensitive during recent weeks - passing up the chance to rally on fresh rumors from the Middle East, and moving instead in the opposite direction to where real US interest rates seem to be heading.

21st March: Gold breaks above $662 after Fed loses its "tightening bias" from interest-rate announcement
23rd March: Data show previously-owned home prices rose 3.9% in Feb. Gold drops $6 per ounce.
26th March: Data show new home sales falling 3.9%. Gold recovers and reaches 4-week high
30th March: Gold closes the week - and the quarter - higher on news of rising food and energy costs in the US

Of course, gold may come to move in lock-step with oil once again soon. Anyone hoping that an inert lump of metal will deliver them a profit should be smart enough to accept that pretty much anything can happen.

Nor does the deep connexion between gold prices and real interest rates offer to make you easy profits short-term. Not unless you've got advance knowledge of which way the data will point!

But longer-term, if the move towards lower real rates of interest should persist - helped along by the Fed cutting rates to rescue the subprime mortgage market...even as inflation in the cost of living keeps rising - gold looks set to attract fresh investment Dollars from both US and foreign buyers.

If you want to hedge yourself against oil, buy oil. If you want to buy gold, buy gold - and don't mistake the two.

You'll have a hell of a time getting it into your gas tank.