• 12 hours America’s Workforce Elderly Workforce To Double By 2028
  • 18 hours Toyota Tests Solar-Powered Prius
  • 1 day Why The Gold Rally Flatlined
  • 2 days The Uranium Sector Can’t Catch A Break
  • 2 days Upcoming Fed Meeting Has Investors On Edge
  • 3 days Global Gold Sector Outlines Responsible Mining Principles
  • 3 days China’s Giant Vampire Fund Loses $120B
  • 4 days McDonalds To Roll Out Robot Drive-Thru Clerks
  • 4 days Savvy Investors Are Betting Big On This Little Data Company
  • 4 days How The Government Is Wasting Tax Money This Year
  • 5 days Supply Concerns Halt Expansion On Tianqi Lithium Plant
  • 5 days The World’s Biggest IPO Is Almost Here
  • 5 days The Relatively Of Money And Happiness
  • 6 days Wall Street Unfazed By Recession Fears
  • 6 days SoftBank Urges WeWork To Pause IPO Plans
  • 6 days Anti-Aging Market To Hit $55 Billion
  • 7 days JPM, Morgan Stanley Take Advisory Roles In Aramco IPO
  • 7 days Are Bonds In A Bubble?
  • 7 days The Unknown Media Giant Taking The World By Storm
  • 8 days From Millennial To Millionaire With One Simple Trick
Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Nadia Simmons

Nadia Simmons

Nadia is a private investor and trader, dealing in stocks, currencies, and commodities. Using her background in technical analysis, she spends countless hours identifying market…

Contact Author

Przemyslaw Radomski

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do…

Contact Author

  1. Home
  2. Markets
  3. Other

Oil Trading Alert: Crude Oil and Gold - What Can We Infer from This Relationship?

Oil Trading Alert originally published on Dec 30, 2015, 9:19 AM


Trading position (short-term; our opinion): Short positions (with a stop-loss order at $39.12 and an initial downside target at $33.66) are justified from the risk/reward perspective.

Although crude oil moved higher yesterday, the key resistance lines continue to keep gains in check. What does it mean for the commodity? Will the oil-to-gold ratio give us more clues about future moves?

Let's examine charts and find out (charts courtesy of http://stockcharts.com).

Crude Oil Daily Chart
Larger Image

Quoting our previous Oil Trading Alert:

(...) we would like to draw your attention to buy signals generated by the daily indicators, which suggests that another test of the Aug low and the strength of the upper line of the red declining trend channel can't be ruled out.

Looking at the charts, we see that the situation developed in line with the above scenario and oil bulls pushed the commodity to our upside targets. Despite this improvement, the key resistance area created by the Aug low and the upper line of the red declining trend channel withstood the buying pressure and triggered a pullback. This means that as long as there is no breakout above this zone lower values of the commodity are more likely than not. Therefore, if light crude extends losses from here, we'll see drop to (at least) the black support line base on the recent lows in the coming days. If it is broken, a way to $35.35 (and then to Dec low) will be open.

Are there any other technical factors that could encourage oil bears to act? Let's take a closer look at the oil-to-gold ratio and find out.

Crude Oil:Gold Weekly Chart
Larger Image

On the above chart, we see that the ratio rebounded in previous weeks, which resulted in an increase to the previously-broken blue line based on the Sept, Oct and Nov lows. As you see, this resistance stopped further improvement, triggering a pullback. In our opinion, such price action suggests that the recent upward move could be a verification of earlier breakdown. If this is the case, the ratio will extend declines from here, which will translate to lower values of light crude in the coming week(s).

At this point, probably many of you will ask: What about gold? Taking into account the fact that the recent upward move in the ratio has corresponded to increases in gold, we think that further deterioration in the ratio will weaken the price of the commodity. Nevertheless, if you want to have a more complete picture of gold (and the precious metal sector) we encourage you to sign up for Gold & Silver Trading Alerts or the All-Inclusive Package that includes it.

Summing up, crude oil moved higher, but the resistance zone created by the Aug low and the upper border of the declining trend channel stopped oil bulls, which suggests lower values of the commodity in the coming days. Consequently, in our opinion, the medium-term trend remains down and further deterioration is just around the corner. Therefore, short positions (with a stop-loss order at $39.12 and an initial downside target at $33.66) are justified from the risk/reward perspective.

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: mixed with bearish bias

Trading position (short-term; our opinion): Short positions (with a stop-loss order at $39.12 and an initial downside target at $33.66) are justified from the risk/reward perspective.

 

Back to homepage

Leave a comment

Leave a comment