Bullish View on Gold…

..priced in Oil. West Texas Intermediate Crude Oil that is. The weekly ratio chart below measures the spot price of Gold ($GC_F) against eh spot price for West Texas Intermediate Crude Oil ($CL_F) over a 5 year span. The most prominent feature is the major run higher in the last half of 2008 before a slight pullback and settling int a channel. That nearly 3 year channel was broken to the upside at the beginning of August before stalling with a minor Double Top above the pattern

price objective of 22.7 in mid September. Since it has retraced back to the channel at 17.75 it is now bouncing higher. This is a good entry point for a pairs trade against the the channel as a stop looking for a return to the 23 high as a target, risking 1 to make 4. So you do not play futures you say? No problem. The chart below presents the ratio as the SPDR Gold Trust Shares ($GLD), against the United States Oil Fund($USO). There is the same channel, only rising this time, with the break out and retest. Risking to 4.43 against a target of 5.69 gives a reward to risk profile of 2.8 against 1.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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