Over the past couple of years we’ve all felt the crunch from higher oil prices. As the price of crude neared $70 a barrel, we’ve had to tighten our belts, turn down the thermostats and forego that long drive to visit a sick aunt. Last fall consumers complained about record revenues and profits for oil companies. Oil company executives have whined despairingly about how there is little they can do in the face of growing world demand and supply shortages. Those companies will soon be reporting more eye-popping revenue and profit numbers, so expect to see another hue and cry from consumers and congress about possible price gouging.

Perhaps investors shouldn’t be surprised that energy remains the top-performing industry sector. Over the past quarter, energy and natural resource funds have returned nice gains for investors. Below is a chart showing how some of these funds fared during the period since November–a little less than three months.

First look at the purple line. That is qqqq, the Nasdaq-100 Index Tracking Stock. During this period, it has gained 0.73%–a paltry performance during a period when many investors seem to believe that the markets have done okay. In contrast, Merrill Lynch Oil Service HOLDRS (OIH), has gone up 23.06%, as shown by the red line. The yellow line is Select Sector SPDR - Energy (XLE), up 14.72%. The green line is iShares Goldman Sachs Natural Resource Index Fund (IGE), up 14.19%. Other energy and natural resource funds have posted similar returns.

Obviously investors holding energy positions over the past quarter have been pleased with the results. But the overall impact of high oil prices on the stock market is bad. If you look closely at the chart, you’ll see that the Nasdaq tends to dip when the energy funds spike. Wall Street knows that rapidly rising oil prices is bad for business. The higher prices impacts the economy much like an increase in income tax. It means consumers have less money to spend on other goods and services. It also impacts businesses who must pay higher costs for things like transportation and utility services.

Now I’m going to include another chart.

This time I’ve extended the period to the past year. I’m still showing Merrill Lynch Oil Service HOLDRS (OIH) with the red line. The green line is is qqqq, the Nasdaq-100 Index Tracking Stock. And I’ve added a yellow line for streetTRACKS Gold Trust (GLD). The price of gold has risen sharply over the past quarter, gaining about 13%. During that period, the price of gold has been closely correlated with the price of oil. That isn’t always the case. In this instance, gold is rising in step with oil because oil prices are at record levels and gold traders know that higher energy costs are going to be passed through the economy.

When oil prices started their major upswing about four years ago, many businesses avoided passing on the price increases by cutting back and by improving productivity. The initial hope was that oil market stability would return and prices would drop. That hasn’t happened. And most businesses have reached the point where they can no longer keep absorbing increased energy costs.

The major engine for gold prices is inflation or the threat of inflation. Gold traders are looking at the oil situation and feel confident that inflation must rise as a result.

After such a dramatic rise is the bull market for oil nearing an end? Energy investing is a volatile game. Certainly it does not appear that demand for oil will lessen in the near future. Oil supplies are also not likely to increase dramatically in a short time. So while oil prices are likely to remain volatile, a significant decline that lasts for an extended period seems unlikely. Investors who can handle daily price swings of up to 10% will probably continue to make money in this sector.