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Gold Oil Ratio says Buy Gold
The average gold:oil ratio (GOR) has historically been in the 15-20 range so gold is not in any kind of a bubble relative to oil prices (bubble range is 30+). GOR is sitting on 200 dma support and looks poised to go higher given the indicators. In other words, gold is set to outperform oil. My target for GOR is 18.80-19.00 range.
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Gold is consolidating as represented by the symmetrical triangle in the chart below. While it could break either way, gold is trading close to strong support along the 144 dma so chances are it will break to the upside and continue on its long-term bull trend. We're seeing significant resistance at the 61.8% fib of 1753. A breakout from the triangle should have us retesting earlier highs.
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Oil is straddling important support at the 61.8% fib level. While many pundits insist gold is in a bubble, no one seems to think oil is unreasonably priced and many expect it to go higher given the potential supply constraints resulting from the tension brewing in the Middle East. JPM has baseline targets of $120-$130. My target is $110-$115.
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In summary: My target for GOR is 18.80-19 range. With a target of $110-$115 for oil, we should see gold ascend to $2,060-2185 (implied return of 20-25%).
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Re: Gold Oil Ratio says Buy Gold
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/2/21_Norcini_-_Crude_Oil_Breakout_to_Carry_Gold_%26_Oil_Much_Higher.html
If you go back to 1998 and look at the gold/oil ratio, we hit 27.5 to 1. The ratio today is at 16.5 to 1. Let’s say the ratio of 16.5 stays consistent, but crude moves to the old high of $150, that would mean a gold price of $2,475.”
It is important to note the gold/oil ratio hit 30 to 1 in the mid and late 80s. The ratio was also close to the 35 to 1 level in 1974.
I expect the gold/oil ratio to eventually hit the 25 to 30 level. But, if the gold/oil ratio simply goes back to the 1998 level of 27.5 to 1 and crude oil makes it way back to the previous high of $150, that would translate into a gold price of $4,125. The important thing here is gold should dramatically outperform oil in coming years. We went to historic extremes in favor of oil and we will go to historic extremes in favor of gold in the future.
I share Norcini's expectations for gold. Though his estimates are a bit more bullish than I am comfortable with. I have no problems projecting an oil price of $110-$115 and likewise think that gold will easily reach last year's high and then some.
Re: Gold Oil Ratio says Buy Gold
Re: Gold Oil Ratio says Buy Gold
Oil fell under the 61.8% fib @ $99.95 today so stay cautious as it could test the 50% retracement level @ $95.30. Barring total failure in Europe, I still expect WTIC to hit the $110-$115 level. As for your question on gold, my best guess is that it would have to consolidate after a 20-25% move and will have to test the center line, at the very least, of the long term channel before continuing to move higher. It really depends on the velocity of any breakout from the current consolidation. The question is whether it continues to follow its decade-long trajectory or if what were seeing is the early signs of a parabolic move.
First is the weekly chart to illustrate the long term trend. Second is the daily chart and what seems to be a new channel forming.
Re: Gold Oil Ratio says Buy Gold
I lke your target of 110 -115 for oil. I'm invested pretty well in oil and hope it doesn't follow JPM's target because what goes up that quick ,usually follows with a slide down. Considering all the unexpected consequences that could result from a ME conflict,I would like to see oil stay high enough to keep interest in our domestic heavy oil development weaning our way off ME oil permanently.Of course JPM is interested in the hype ,followed by the short which they do so well.Yours are interesting views Scottie.If you know as much about oil as gold PD members will be glad to see you posting more blogs. If gold ascends to over 2,000,do you expect it to remain in that area or fall down and if the latter,How Far?