GOLD OIL RATIO

The gold:oil ratio is nearing the upper limits of its trading band. When this level has been reached in the past it usually signaled a decline in gold (move down into an intermediate cycle low) and a rally in oil was eminent.

Normally I would expect the same this time as gold is very deep into an intermediate cycle and overdue for a major corrective move. There is a problem though. Oil is still very early in its intermediate cycle. Also oil has broken below its prior intermediate cycle low signaling a failed and left translated intermediate cycle is in progress.



Taking into consideration a normal intermediate oil cycle lasts 50 to 70 days, and this cycle is only on day 32, then oil should generally continue lower for another 20+ days. 

As oil and stocks have been moving in lockstep lately it’s not surprising that the stock market’s daily cycle also has 20 or so days before an expected final intermediate bottom.

So if the gold:oil ratio is to regress back to the mean, and oil still has a month before an expected bottom the only way the gold oil ratio can decline is if gold starts to accelerate to the downside, dropping significantly faster than oil.

197 thoughts on “GOLD OIL RATIO”

  3. Gold Lion

    An interesting perspective I heard today..I think it was Richard Grandish on Jay Taylors radio show is that an easing of inflation (ie lower oil prices) will be very bullish for mining shares. Could mining shares and the DX go up together?

  5. Gary

    At its peak oil was $40 below the high of 08. Oil wasn’t what was holding miners back.

    Considering that the HUI is on the verge of a 50 DMA cross below the 200 DMA it would seem that the miners are trying to discount and impending severe intermediate decline.

  8. William

    Gary,

    Im sorry, but this is not clear to me:

    “Normally I would expect the same this time as gold is very deep into an intermediate cycle and overdue for a major corrective move. There is a problem though.”

    What do you mean there is a problem though, does that suggest that gold will not enter into an intermediate decline yet?

  9. Éamonn

    Gary, how reliable, if I may ask, has the gold:oil ratio been in the past? Is it an important part of your toolkit? Thanks, Eamonn

  10. Gary

    So if the gold:oil ratio is to regress back to the mean, and oil still has a month before an expected bottom the only way the gold oil ratio can decline is if gold starts to accelerate to the downside, dropping significantly faster than oil.

  11. Éamonn

    William, in order for the gold:oil ratio to correct, gold will have to (relatively) go down. One way this is accomplished by oil rising. However, given oil is early in its failed cycle and unlikely to rise, it is more likely gold will accelerate downward at a greater rate than oil to balance the ratio

  16. Éamonn

    86d4life, that was a dumb ass mistake. I hadn’t finished reading the article. The oil:gold ratio is a thing I didn’t know about before so it nice to have a new tool in my toolkit.

  18. William

    Eamonn,

    Thanks for explaining that to me, I appreciate it. This is still all new to me, I never even knew that ratio existed until now. After re-reading Gary’s post a few times I began to understand exactly what you just explained. I was a confused at first because gary said “there is a problem though” and wasn’t sure what exactly the problem was. From watching the gold and oil futures markets for some months now it seems that when gold drops it declines alot quicker than oil does, so I would assume that if gold is about to enter an intermediate decline the gold oil ration will regress as suggested.

  20. 86d4life

    Eamonn,
    yeah, I find myself doing that once in a while. Sometimes it`s been during trading hours and I`ve almost put in trades and then catch myself at the last second. But I`ve found that`s the kind of thing that can make a guy slow down a little and that can be a real life saver.

  22. 86d4life

    William,
    Thanks Dude! Never thought of that. Pretty simple. Hey, are you taking MSM after your shoulder surgery? It`s the clear deal; just ask Gary………….:)

  25. Éamonn

    86d4life, his knee was surgically replaced a few weeks ago. So he didn’t have the chance. I plan on getting it though, and I would like to have platelet enriched plasma therapy too. I have seen relatives with knee replacement surgery many times now, and its not nice. In fact, it is brutal

  27. 86d4life

    William,
    absolutely amazing stuff.

    Eamonn,
    he should be taking it especially now to help reduce inflamation and speed healing.

  28. 86d4life

    Eamonn,
    your talking about the treatment that Gary is getting for his knees. I tell you, that sounds like a real slick deal if it helps put off surgery. I think about knee replacements and I almost want to hurl just thinking about it.

  31. KAL

    Eamonn, I was just foolin around. That was a play on Kung Fu.

    I once visited a guy in our church who had a total knee replacement. I was back in the hospital about a month later to visit him again… They recalled his knee. Boy was he mad! That was a tough deal.

  32. gough

    Gary,
    Take a look at a chart of GDX, it recently had a “death cross” (50dma crossing below, 200DMA.) It was extremely oversold and it is bouncing now, but the question I have is when was the last “death cross,” it looks like back in late 08, and is there anything to glean from this?

    thanks.
    jeff g

  33. Gary

    “Considering that the HUI is on the verge of a 50 DMA cross below the 200 DMA it would seem that the miners are trying to discount and impending severe intermediate decline.”

  34. MrMiyagi

    GLD, GDX and SLV were also on the SOS menu today, in case y’all missed it.

    Gary, I’m just amazed at the 12 week thingy in the cycles that you pointed out tonight, it’s practically like ovulation.

  35. gough

    Ok, right. Sorry. It looks like 55 is a decent level of resistance now, so I’m going to buy some puts on it there. RSI5 should be over 70 and williams indicator should be overbought. any thoughts?

  36. Gary

    Why not just enjoy some time off and once the market corrects then put your capital to work on the long side?

    One doesn’t have to trade every day and trying to catch the top in a bull market is tough.

    Probably what will happen is you won’t time it right and end up panicking out for a loss several times before catching the top.

    Then usually what happens is one is so shell shocked from multiple losses that they can’t hold on when they do manage to catch the top.

    The safe money is made by patiently waiting for the correction and then buying heavily as close to the bottom as you can.

  41. William

    Gary,

    LOLL…you couldnt be more right about panicking out and being shell shocked…you must have done it to yourself many times in the past and learned well from it.

  49. I've Eaten Silver

    this stoppage of retail investors from being able to trade PM futures on the Forex should have a huge effect on the PM prices. Being leveraged up to 100:1 in that market, the sales that will be forcibly liquidated if the positions haven’t been sold prior to the 15th of July will push the market down huge!

    isn’t this the only market in the world an average Joe could have had up to 100:1 leverage on gold or silver?! Jeez! Now that will all be winding down and Joe, if he has anything left will be left with 2-3x leverage maybe a little more through normal exchanges.

  50. I've Eaten Silver

    What’s funny is right now the participants in the Forex with PMs probably realize this is the last straw and will be trying to hit home runs prior to mid-July. Most will probably be rudely awaken to an int. decline!

    I wouldn’t be surprised to see higher prices tomorrow or the following day to lure these suckers in.

    Hey Nitro, weren’t you trading these successfully? If so, what are your feelings now?

  51. jeff

    im really getting frustrated with the dollar. Today really hit a nerve and is starting to agrivate me. If i do sell it ill let you guys know, because that will be a sure signal that there will be a 1.25 bounce about 30 minutes after i sell =)

  60. Dan

    1550+ on gold. My guess is well have a sell the news market turn once the fed meeting kicks in.

    Otherwise gold will officially break out.

  61. DP

    Can anyone compare effectiveness of the options versus futures in view of upcoming gold bottom?

    I never worked with futures, but moderately experienced with options.

    Also, any recommendations about specific futures brokers?

  65. Gary

    I certainly don’t think the miners are in a bear market. I do think they are discounting a severe impending correction in gold though.

  66. Robert

    Gold just keeps going up—might get a correction but it may be close to 1600 before we get a pullback–With the FOMC meeting today you would of thought gold would be flat but it sure surprising everyone

  70. Gary

    The dollar cycle is irrelevant as gold moves down into an intermediate bottom independent of whether the dollar is moving up or down.

    An intermediate decline is a regression to the mean profit-taking event, and gold is starting to stretch far above the mean.

    I find it easiest to visualize this if I back the chart out two or three years. That way it is easier to see how far gold is stretched above the mean.

    If you look at history it’s apparent that upside is limited once this stretch occurs and it’s always followed by a move back down to the 200 day moving average, or in the recent cases the 150 day moving average.

  71. Frank

    But maybe it was a buying opportunity last week for miners?

    If you bought NGD last week then you are up 15-20% at this point. I bought some at 8.76 but sold yesterday since it was a trade. Some of the weaker stuff that I own like NXG is still treading water. Well, it’s up 3% today.

    There were rumors of hedge funds running long gold and short miner pair trades, but I didn’t see any indication of that based on short interest. If that data is even correct.

  73. Gary

    Frank,
    I would never buy the precious metals sector 21 weeks into an intermediate cycle and with gold starting to stretch far above the 200 day moving average.

    One could take it for a short term trade I guess it’s too dangerous for me to play with.

  74. Aaron

    DP,
    A futures contract should perform better if indeed you catch a bottom. Options almost invariably charge a premium but provide limited risk characteristics.

  75. Clarkatroid

    Fusby or DG

    I have a core holding of EUO that I’d like to build on. I’m thinking here looks like a decent spot to add a little. Any thoughts appreciated

  76. DP

    Thanks Aaron.

    Have the same feeling that in frame of cycles approach futures would do better since do not have time decay.

  77. DG

    Clark. Depends. What is your reason for adding here? What do you see that says this is the right spot?

  78. Frank

    Gary, I was arguing/ discussing with Poly yesterday about the standard deviation of your IM gold cycles and how that is important since the standard deviation should influence probability based decision making.

    There is also the inherent bias of labelling the troughs. Could May have been a shallow trough? I noted some inconsistencies in the labelling of the troughs from your chart on the free site and the example (through early 2010) on your premium site. E.g., Oct 2007. I also recall the difficulty you had in Jan-Feb 2010 when it would have been better to be “old Turkey” and indeed Feb 2010 was a great buying opportunity.

    Now the picture is even more complicated because of the disconnect between gold and miners of recent months. You say miners were discounting an imminent plunge in gold. Maybe so. I don’t know.

    I suppose one point with this is that one should never be all-in or all-out (of miners) if we are indeed still in a secular bull market. And it also ties into the difficulty of becoming a “strong hand”.

  80. veryCommonsense

    Were there any simple facts about $HUI suring to top of trendline, before blowing us away with the gold:oil?

    Looks like oil will rise a bit at this point which is the more likly reason to take the gold to oil ration down.

  83. Clarkatroid

    That theres some juice left in the day dollar cycle, i View it as a medium term holding , I’m underexposed and looking to build my position, and recent weakness over the last couple of days

  86. Peter

    Bill Gross just announced he predicts QE3 to commence in August.

    No different than when Gary has it beggining in accordance with his cycles.

  92. Hack

    Silver and gold have been range trading now for quite a while. The miners are starting to play catch up and have definitely turned the corner. The bull trend in the market is intact.

  93. Peter

    Gary,

    One thing I fail to understand with your recent cycle theories is the focus on the SPX. You won’t short until you see the March lows get taken out in the SPX, even though they were already taken out in the RUT and COMPQ indices.

    Why is the emphasis on the SPX? Is it because it’s the most followed index these days?

    Thanks.

  94. DP

    Jeff — “And he is a smt member” — WOW!

    Aaron — already did. Will call you soon.

    Thanks everyone.

  99. Poly

    So far Gold has moved as expected when approaching the end of an IT cycle. Only remaining question is FOMC the top or is this daily cycle going to be a right translated cycle where it tests the all time high or makes a new high, before roling over. Either way, we’re talking hours to days and little difference in price.

  101. I've Eaten Silver

    I agree Poly, good analysis.

    I don’t see it making new highs with Benny announcing QE to end. Also the dollar is at/near support and it appears it doesn’t want to go lower. Couple that with S0S and I see odds low of PMs higher.

  120. Ben

    My current opinion is that the miners I follow like NGD and NSU have seen their lows. They were V-bottoms though, rather hard to trade. NGD is up 16% off the low I was watching off my screen just a few days ago.

    Still; I’ve seen it do this before where a significant bounce occurs and then it collapses again below the pre-bounce level. Very volatile.

    If it does behave that way again (and GDXJ etc.) there will be some happy people over here including me and there will be a lot of pissed people who were sucked in yet again.

    I bought a cylinder of N2O in anticipation of maniacal expressions of self congratulations. Come on cycles, show what yer worth!

  122. Dan

    Gold having an intraday reversal and closing in the red after hitting highs would be the beat outcome for those shorting

  126. Hack

    William;

    I really don’t care what happens next week or next month, I trade what is in front of me and right now my SLW, EXK and ANV have made significant gains the last three days. The pull back we just had offered too many bargains for me to pass up.

  127. DG

    SLV just popped up on my sell screen! If it is about to ramp higher this will not stop it, but anything other than that and it is about to tank. It is maximally stretched to the upside. I doubled up on my puts.

  137. DG

    Felix: It happened a few times during the run up into the parabola and I just ignored it (kept all my AGQ). Think of it as super-overbought. If you are starting a big bull run overbought is meaningless, but if you are in a bear move and just got too far during a bounce, it”s the place to short. Let’s hope it’s not the start of a big bull move!

    Before the crazy run it was rare and pretty accurate. Given everything else I thought it was worth acting on this time.

  145. David

    DG, Mr. Miyagi,or…

    Having just read and digested “What is Options Delta” is going out to Oct far enough for a put on SLV. The next choice is Jan.

    Jenny

  146. Romeo Bravo

    David, if I could jump in, way, way to far out to go January. Usually if you buy more than two months out, you are overpaying via time cost. I would imagine the expected downturn in in Silver will materialize by the middle of July to early August so perhaps August is fine. If you want to wait longer, September options should be available right after July Opex, but the move may have started by then.

  148. Poly

    Cycles give you a major advantage when trading options and that’s knowing time! We know the IT low should come by late July early Aug, so why pay more, buy Aug.

  149. DG

    I am an options rookie compared to Romeo but agree that August is probably plenty and certainly September.

  152. Poly

    Yes, I added some OTM July before the FOMC this morning. My targets for the daily cycle were more than hit, now it’s just a matter of time.

  159. http://www.marketspath.com/

    Our TF trade set up from this morning looks like it may have played out and completed the 5th wave.

    There still is a chance that there is another push up, as our target this morning was 811ish and TF (rut futures) 808. It appears to be trading within a reverse sym triangle and is at the midpoint right now with some fibcluster support and a pivot sitting at 797.90.

    If buyers step in, they may freeze the TF, as shorts may be a little scared to jump short..and that would leave the door open for the 811/813 target.

    If we head south through the pivot..odds that the TF completed the 5th increases. If that is what happened, we have a turn date next week and they have been pretty reliable. In fact very reliable. 147 spx points high-low/low high on the turns since June 1 turn date.

    Anyhow..if the 5th is complete, I am expecting some choppy tape with a down bias into that turn date..with another rally ready to start-which will most likely run into the July turn dates. Yes, we have them weeks in advance..months actually 🙂

    From there, we need to look at the bigger picture, as there is a major turn date cluster in August, which I believe will mark the low
    (1120 spx?)

    the turn date are all recorded on the our blog..you just have to read through the post to see them. Good luck..G-

    http://marketspath.blogspot.com/

  160. seemster

    DG, how is SLV maximally stretched to the upside? Looks just past the middle of a new trendline, but that could be what your signal is saying. SLV will probably step back for a day or two.

  161. http://www.marketspath.com/

    Our TF (rut futures) road map has just about played out as planned. We were looking for it to make a new high which it did, but we were looking for 810ish as a target.

    It appears wave 5 completed and now we should see some choppy tape with a bias lower into our turn date next week.

    The turn dates have been very reliable and have produced over 147 points from high to low and low to high from the turn dates. This is not a tradable calculation, as many overlapped each other. But those were the points generated since the June 1st turn date.

    These dates are all documented on our free blog and we have been giving them out weeks in advance to our members. Yes, I have the turn dates already for the next month..and even August, which is where I see a major cluster of turn dates.

    When I see them pop up like that, it is usually a major low or high formed at that time. My guess is it will be a low. (spx 1120?) We will cross that bridge when we get there. For now, I am just drawing short term road maps off of the turn dates..And I fully expected this turn today. Good uck..G-

    Here is the blog with our previous dates.

    http://marketspath.blogspot.com

  164. DG

    Seemster. My signals are designed as a short term trading call. My approach is: give me a head start and I’ll figure out the rest. I usually put in a break even stop after a 1% move in the item. Then I either win bigger or break even. The goal of trading is to not lose. Paul Tudor Jones made that point in the “Trader” movie someone posted the link to (Thanks, BTW!). If you place lots of bets and don’t lose on most of them you will make an enormous amount of money. Nice head start in SLV so far…

  166. Ben

    Harry, do you remember what happened last year when the FedSpeak occurred and the realization that QE2 was not NOW but ?? in the future? Maybe there was a slight delay before the IM decline occurred?

  167. seemster

    SLV was down four days in a row the last time it touched the top of the trend line. This time it has broken through the trend line and still not as oversold as last peak.

  169. Gann360

    THX.

    Something else it didn’t Mention in the Chart.But i will share with you. is that, the Most repeated Number in the Bible is 3 and 7 .Today is the 7th Upday from the Recent Pivot Low in Silver. Now again , it may not Happen, But , Believe me when i say , i does Happen ALOT!we reverse after 7!

    I did Take a short Position in Silver ,Cause of it.

    Now. All i need , is Silver to Gap n Crap Tomorrow !

  171. DG

    O.K. I am pretty loaded with shorts again after selling my longs the last two days. EUO and SLV (with a little LULU thanks to BobFromHawaii.) I expect to add a little each day. Still hoping to short China/FXI and to redo EEM.

  174. DG

    86D: No, I am not short the S&P—and for no good reason, I might add. It’s a no brainer, it’s just that these others have given me good entry points: I got the sell on SLV today and have been in EUO for a while, all below 16.95. Whenever I want to short something and don’t know what to do I do some SPY’s

  178. Alex in Montana

    Fed Meeting August 2011 in Jackson Hole. (not yet scheduled by KC Fed – I checked their website).

    Bill Gross of PIMCO and many others expect QE 3 announcement at this years meeting.

    Could be a big disappointment to bulls this time around. We’ll see.

    Leading up to meeting could be a “risk on” rally though – keep this in mind when you trade.

  187. valeriobrl

    “They” pushed up ZR like no tomorrow..my adrenaline was quite high…ALL THE WORLD was looking for 18000,19000 even more…something to remember..something that helps You in days like today..GL everybody, I’m out,until next week.

  191. Harry

    Gary, for the sake of my put options I hope you’re right. I still have eight weeks until expiration and at this rate I’ll need every one. If I had slightly more testicular fortitude I might just stock up on more here…

  194. Poly

    Good report Gary.

    We also have a likely rout on all risk assets coming soon and we should expect gold to get smashed with this event, along with it’s natural move into a IT cycle low.

    But the setup coming in August are the ones you must be prepared to take advantage of. Bull market IT cycle lows are like a hanging pitch over the plate, you’ve got to swing for the fences. Throw in a possible QE3 in Aug/Sep and you’re talking serious gains.

  196. Dan

    Edwin,

    40 years?!? Well in that case I understand as this is obviously a hobby for you rather then a method to increase your net worth. However, since you are a permabull and not here to make money any real money, if your going against Gary’s game plan then can you please provide some evidence as to why or just keep it to yourself as some of us are here to keep our accounts in the black. There must be some numismatic forum that maybe better suited.

  197. Whirlaway

    ^HUI index very close to 50EMA vs 200EMA “death cross” right now. GDX, GDXJ, GLDX have already got there. SIL still has 50EMA soem 4% above 200EMA but the gap is narrowing (a month ago it was nearly 10%)…

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