Gold-Oil ratio warns of further selling

The Gold-Oil ratio, comparing the price of bullion ($/ounce) to Brent crude ($/barrel), has long been used as an indication of whether gold is in a bull or bear market. When the oil price is high, demand for gold, anticipating rising inflation, is normally strong. The current plunge in oil prices indicates the opposite: weak inflation and low demand for gold. Bullion prices are falling but not fast enough to keep pace with crude, driving the Gold-Oil ratio to an overbought position above 20. Expect a long-term bear market for gold.

Gold-Oil ratio

Spot Gold is consolidating in a narrow rectangle below $1100/ounce. This is a bearish sign, with buyers unable to break the first level of resistance. Breach of support at $1080 is likely and would signal a decline to $1000/ounce*. Declining 13-week Twiggs Momentum below zero confirms a strong primary down-trend.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

The Gold Bugs Index, representing un-hedged gold stocks, has fallen close to 30 percent since breaking support five weeks ago.

Gold Bugs Index

Barrick Gold, one of the largest global gold producers, is falling even faster.

Barrick Gold

If long-term crude prices continue to fall, like the June 2017 (CLM2017) futures depicted below, gold is likely to follow and support at $1000/ounce will not hold.

WTI Light Crude June 2017 Futures

2 Replies to “Gold-Oil ratio warns of further selling”

  1. You americans are use to think as your country is the lone in the world…but it is not like this anymore. There is half part of the world, in Asia (which income has grown and continue to grow) that are buying gold despite of the falsified US CPI or that do not consider gold just a commodity.

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