The Gold to Crude Oil Ratio is Getting Jiggy
- Posted by Greg Harmon
- on November 6th, 2012
Gold ($GLD) and Crude Oil ($USO) went through a period of high correlation in 2009 which was quickly reset a bit higher in 2010 in to 2011. Since then though the relationship has been tenuous and may be on the verge of a major change. The ratio chart of Gold to Crude Oil below shows the two consolidation zones mentioned and now a break of a symmetrical triangle. That break is being retested now, and if it holds up there is a target of over 7 on the ratio, 36% higher than where it
stands today. The momentum indicators (RSI and MACD) shown in the chart are both supportive of a continued move higher as well. With Gold in the form of the $GLD at 163 and Crude Oil in the form of $USO at 31.60, that put broad limits on a potential move. With no change in Crude Gold would rise 36% to 222 and with Gold held constant Crude could fall to 23.15. Neither extreme is likely but it does suggest that Gold may be bottoming while Crude Oil is just taking a breather before another leg lower.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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