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XMFSinchiruna (27.93)

Oil to gold ratio - suggests gold is due for a breakout

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June 16, 2008 – Comments (11)

While oil and gold are not inextricably linked by any means, their respective trajectories in recent years have been largely precipitated by the same weakening of the same USD, and so their correlation has been strong throughout this bull market in commodities.  The fact that gold has underperformed oil in recent weeks is an additional magnet tending to pull gold out from its present corrective stance.  The notable resumption of weakness in the dollar today factored into the strength in both oil and gold today, and once gold finds support over $900, we will see this oil / gold ratio retreat from the spike.

11 Comments – Post Your Own

#1) On June 16, 2008 at 4:22 PM, loriyacht (31.93) wrote:

Or oil is about to crash down...   not sure which it's going to be..

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#2) On June 16, 2008 at 4:30 PM, FourthAxis (< 20) wrote:

Man...I'm already long on gold, and this chart is begging me to pair trade...but I just don't have the heart to short oil.  Keep it up!

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#3) On June 16, 2008 at 5:07 PM, hansthered0 (< 20) wrote:

Can you post a link to a larger version of that chart? I can't read it...so small.

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#4) On June 16, 2008 at 5:13 PM, ATWDLimited (< 20) wrote:

I think gold will rise, but will not break $1,500, or even $1,200 in this run. The reason being demand world wide for it is down, so the useful support for gold prices is being knocked down. This leaves only hedgers and collectors, who use it's intrinsic value. My guess is it will outperform the S&P, but underperform other base metals like silver, iron, copper and the like. Just my 2 cents.

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#5) On June 16, 2008 at 5:26 PM, XMFSinchiruna (27.93) wrote:

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#6) On June 16, 2008 at 5:32 PM, GS751 (27.50) wrote:

You have to be insane to short commodities.

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#7) On June 16, 2008 at 5:48 PM, XMFSinchiruna (27.93) wrote:

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#8) On June 16, 2008 at 8:54 PM, RVAspeculator (30.82) wrote:

I agree... my current pair trade is GLD calls coupled with VLO calls.  VLO will bounce if oil falls.

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#9) On June 16, 2008 at 10:47 PM, ajm101 (32.25) wrote:

Do you have a much longer chart than the 3 year? I have a hard time getting past the lack of utility of gold as an investment (it's shiny and yellow, sure, but I can't eat it or use it to get to work), but your chart is very persuasive in a 3-6 month timeframe.

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#10) On June 17, 2008 at 1:18 AM, angusthermopylae (39.97) wrote:

I ran these numbers for my own chart for the last 9 years, and I agree completely.

(My computer crashed last week, and I haven't recovered the data yet, but I will post it when I do)

I was looking at the same thing, and it seems that, by the numbers I had, oil to gold was beginning to stretch to a high.

BTW, my purpose wasn't to predict oil or gold pricing, but to try and remove the value of the dollar from the equation.  Off the top of my head, the price ratio was relatively steady (over time), with fluctuations of only plus or minus 0.08 in the ratio....big reversals when it got out of whack one way or the other.

It also suggested to me that the current price increases were because of weakening dollar rather than pure supply-demand, again because of the relative steadiness of the pricing.

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#11) On June 17, 2008 at 9:34 AM, XMFSinchiruna (27.93) wrote:

angus... excellent point... the oil to gold chart does reveal a lot about the extent to which the weakening dollar is central to everything we see happening here.

ajm, there is a longer term chart somewhere in my blog, which I will go back and try to find.  I'm sorry you are stuck on this idea of utility.  First... gold IS useful... there is gold in the computer you're typing on.

But more importantly, gold is money.  It is not a commodity... it is money.  Are the dollars in your wallet useful?  They are, but they're getting less useful by the day... which is why people are turning to gold.

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