Sunday, January 6, 2008


The GOLD Oil Ratio is calculated by dividing the gold price by the oil price.

Gold-Oil Ratio = Price of Gold (per oz.) / Price of Crude Oil (per barrel)

Rising oil prices result in decreased consumption and a slow down in the economy, and negatively affect stock markets. On the other hand, in times of crisis, uncertainty and rising inflation gold is always looked to as a safe haven.

Recently, we have seen both gold and oil rally, as the US Dollar continues to decline.

So are we overdue for a pull back?

A high gold oil ratio = either gold is too expensive or oil is too cheap = SELL GOLD, BUY OIL

A low Gold Oil Ratio = either gold is too cheap or oil is too expensive = BUY GOLD, SELL OIL

Historically, the Gold Oil ratio has support between 8 and 10 barrels per ounce of gold, & spikes over 20 are shortlived.

Is the gold oil ratio going to rebound?
1) oil falls and gold rises
2) gold rises faster than oil
3) oil falls faster than gold

With all the momentum in gold prices recently; fueled by a rising unemployment rate, an increased likelyhood of a recession in the US and a falling USD, gold prices could rise still further, even though gold currently looks overbought.
The possibility of a large FED rate cut is adding to the strength in gold.
Fresh buying can be avoided, waiting for a pull back.

Oil prices are facing a psychological resistance at the $100 mark. Geopolitical concerns, supply disruptions and a falling usd are fuelling high oil prices. A break past $ 100 could propel prices still higher, while a recession in the US will be oil negative.

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