LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com to Launch New Website
By: GoldSeek.com

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target Ė Hereís What to ExpectÖ
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA

 
Search

GoldSeek Web

 
Why a Top in Oil is Bullish for Gold Stocks



-- Posted Thursday, 8 May 2008 | Digg This ArticleDigg It! | Source: GoldSeek.com

Jordan Roy-Byrne

 

Technical analysis isnít just a study of price action of a single stock or market. It involves much more. It has been a while since Iíve written about intermarket analysis, which studies and compares the relationships between markets. Some markets will be weak if certain markets are in a bull trend. Some markets trend together. A simple example of intermarket analysis is that gold and oil (and most commodities) tend to rise together. Wouldnít that entail gold stocks rising as well? Wouldnít that mean rising oil is good for gold stocks?

 

My title is counterintuitive isnít it? Gold and Oil generally follow each other. Up or down. While this is the case it doesnít explain the poor performance in the gold stocks relative to gold. Fundamentally speaking, rising energy costs negatively impact the gold miners. We have to remember that mining is both an energy and capital-intensive business. Inflation hurts the miners too. Anyway, let me explain the following chart in which I have plotted five different markets/relationships. On top is the GDX/GLD ratio (gold stocks/gold), followed by the Gold/Oil ratio and then the price of Oil. On the bottom we have the HUI (gold stock index) and Gold.

 

 

I have drawn vertical lines to show the previous important tops in Oil. Each top in oil has corresponded nearly perfectly to a bottom in the Gold/Oil ratio and these bottoms have occurred fairly close to bottoms in the Gdx/Gld ratio. The same can be said for Gold and Gold stocks (HUI) individually.

 

The last top in oil in July 2006 didnít have the same strength of effect as the other three tops. The reason is that top didnít occur at an absolute low in the Gold/Oil ratio, which made a lower bottom six months earlier. That could explain why, when Gold and Gold Stocks began to a rally a few months later, the Gdx/Gld ratio didnít perform well. Why did Gold outperform the gold stocks on the recent move from $800 to $1033? Both the Gold/Oil and Gdx/Gld ratios fell as Oil moved from $85 to $124.

 

Another important point is that these signals are not exact time wise. For the first two peaks in Oil, the HUI bottomed about a month later. The HUI bottom about three months before the next peak in Oil (2005). The October 2006 bottom in the HUI and Gold came about three months after Oil topped. The conclusion though couldnít be clearer. The last four tops in Oil occurred almost simultaneously with bottoms in the Gold/Oil ratio, which correlates strongly to the performance of gold stocks against Gold.

 

Oil is coming up against very strong Fibonacci resistance at $124 to $125 as both the Gdx/Gld and Gold/Oil ratios are at 52-week lows. All the evidence considered, there is very strong evidence that investors are staring in the face the best buying opportunity for gold shares since May 2005 and late 2000. While I have been eagerly anticipating this point since summer 2006, I pointed out in my 2008 Market Outlook that Oil was the single last market for Gold to ďbestĒ on a relative basis. Look for the bottom (on Gold/Oil) that was put in yesterday (May 7) to hold, and look for the mining shares to lead the metals to new highs. 

 

http://www.trendsman.com

Trendsman@Trendsman.com


-- Posted Thursday, 8 May 2008 | Digg This Article | Source: GoldSeek.com




 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.