timwest

Gold Versus Crude Oil - 1990 to Now - 25 barrels oil / 1oz Gold

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Many of you replied to my graph about 25 barrels of oil             for 1 oz of Gold             chart and wanted to see more time. If you click on the time scale on the chart, you can see more time going back to 1990.

You can see how there is no quarterly low above 25 and there are peaks up to 27 and just over 28.

Time will tell if the past is a useful reference for the present.

Tim 1:08PM Friday, January 9, 2015 25.53 ratio XAUUSD/CL1! Gold/Crude Oil            
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guidoisot
2 years ago
IF one has no gold, do you think one could trade this ratio with a spread?
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timwest PRO guidoisot
2 years ago
You could try. $ for $ positions. Set up the trade equal money on both sides in the notional value of the commodity. A crude contract is $50,000 worth of crude oil @ $50/barrel. A big gold contract (100 oz) is $120,000 of gold at $1200/oz for Gold. So you could buy 5 crude oil contracts ($250,000 worth @ $50/barrel) and sell 2 Gold contracts ($240,000 at $1200/oz). If you put this on with ETF's you can match the $'s much easier, buying USO and shorting GLD, $ for $. I don't like USO long term, but for short term trades it can work.
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Ansari timwest
2 years ago
1 lot gold = 2.5 lot oil ?????
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savy
2 years ago
Hello Sir,

What are you trying to say did not exactly get it could you please explain in detail
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I don't buy it I'm afraid Tim - correlation not causation - both are USD denominated assets, and both are impacted by inflation and causal supply chain issues, I've seen charts correlating them since 1978

IMO Crude will test $40 and stay there until the P&E industry's hedges begin to run out in Q2/Q3, then the junk debt defaults begin as the producers fold. The rig count drops, and only then does Crude rise - as does Gold, but on debt default fears and inflation re-appearing as the job numbers collapse in the mid West and QE looks to begins again, devaluing the dollar, causing crude to rise further.

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timwest PRO neilstansbury
2 years ago
Buy what? You don't agree this level is high historically? Causation? I didn't mention anything about causation. I merely point out the relationship between the two markets. Crude oil is cheap now relative to gold. That is just a factual observation. It may get cheaper, as you point out with your timeline and reasoning. Sometimes it is ok to be a little early on a trade, in case you are wrong. Big trades do take awhile to set up. I hope you publish some charts that suggest the perfect time to buy crude and gold. Also, correlation and ratios are uniquely different. Correlation is just price movement similarities while this is showing the proportions that the market values gold and oil relative to one another. I like your fundamental perspective on how the market may come under pressure from debt defaults and hedges. I think that is what the market has already priced in. I think the selling of futures contracts has been done by lenders who are hedging against the collapse of their own debts and that is over-extending the crude market to the downside. We never know what is happening in a market with the facts of who is selling how much and why until after the fact, and really we don't ever know. What if the crude oil market is loaded with short sellers who are now fully committed and there could be longs who can squeeze the daylights out of them? From what I've seen since the 1970's when I started watching markets is that anything can happen. Let's help each other out and cipher out what is really going on in a market to set up the highest return, lowest risk trades we can ever imagine.
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neilstansbury PRO timwest
2 years ago
Hey Tim.

I don't "buy" that a Gold/Crude ratio of 22+ is a reason to buy Crude - and especially not swapping it for any existing Gold positions, and double that for any physical bullion positions. I completely agree with you that the ratio is historically high - but then so is the Gold/Silver ratio too. I'd suggest the ratio is out of whack due to much bigger games at play, and in no small part due to central bank funny money as much as anything else. You are right that the ratio will correct to the mean at some point, but not because the ratio is high - that's the correlation, but because the actors and games will change, or at least have a reduced impact, and that's the causation to bet on.

As you point out that is fundamental analysis, how you'd chart "games" like that technically are beyond my skills. The other problem I have with simplistic ratios like these is the supply side issues. Gold peaked in 2009 on Eurozone default and hyperinflation fears, just as the LTO boom started feeding in supply from the US & Canada. IMO we'd need to factor out supply issues with Crude to get a real demand rather than supply side ratio, assuming Gold production changes aren't significant factors due to market size.

Personally, my fundamental positions are 2016/2017 Calls on TLT and Puts on JNK & FXE, and recent technical short term puts on GLD/GDX that I swap for physical positions when I can, because long term I'm a hard hat wearer ;-) I also wonder how the Greek elections, Draghi's bond purchases, and Venezuela's oil funded debts might all conflate together....
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timwest PRO neilstansbury
2 years ago
Hey Neil,

I appreciate your response and excellent key factors that may drive markets into the future. I do want to put as many fundamental trends in my favor when I search for technical trade setups. The depression in the oil producing sector from bad debts will be a bigger mess than the Mexican crisis back in the 1980's where we needed Brady Bonds to bail out the whole situation. I wanted to correct the Gold peak date to 9/2011 (instead of your 2009 peak in Gold comment), I'm sure that was just a small oversight. I would like to review all of your charts and fundamental perspectives. Thanks for your response and look forward to any further comments and insights that you have. Tim January 28, 2015 1:30AM EST
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timwest PRO neilstansbury
a year ago
I'd love to hear your update Neil. Your excellent insights from 7 months ago (Now Sep 2, 2015) were valuable. What are your thoughts now? Has the rig count dropped enough? The producers are folding and junk debt has been collapsing this year, as per your forecast. What's next?
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Ansari
2 years ago
hi timwest, very nice.
many thank's.
USOIL / XAUUSD
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timwest PRO Ansari
2 years ago
Thanks AboozarAnsari. I do try to find interesting charts that tell a story.
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Ansari timwest
2 years ago


In this situation, the move against the oil and gold price per ounce of gold caused the barrel to reach 25 times. This amount, before 1998 (when Russia was bankrupt because of high debt and a turbulent oil market, to buy gold action) was experienced.

Although this is a signal that the spread of negative inflation (deflation), but experts have different opinions. In fact, the drop in oil prices caused a sharp rise in gold prices due to supply and increasing concerns about the economic situation, especially in Europe, this fundamental difference, concerns about inflation can reduce the negative.









































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hussain9 PRO
2 years ago
I think we are going to 42$ . 2 hours chart :

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Ansari hussain9
2 years ago
hi hussain9 , many thank's.
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hussain9 PRO Ansari
2 years ago
u r welcome .
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Lanmar PRO
2 years ago
Very interesting. Thx
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timwest PRO Lanmar
2 years ago
Thanks LANMAR - I think so too.
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timwest PRO
2 years ago
ZeroHedge.com ran a piece today January 29, 2015 on their blog about the Gold/Crude Ratio - They say the same thing and add a few comments about the cause of each move to this ridiculously cheap level. http://www.zerohedge.com/news/2015-01-29/oil-hasnt-been-cheap-1988
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IvanLabrie PRO timwest
2 years ago
Late to the party huh?
Our local market connoisseur gaves a timely heads up...
;)
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timwest PRO IvanLabrie
2 years ago
Well, they waited a little and got an even better entry level near 28 when I was pointing out 25+. Patience is a virtue.
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DaQuant PRO
2 years ago
Hi Tim,

It's indeed a great chart, and I also feel like longing oil in recent days. But which way do you think is the best way to buy oil? Just use ETFs like USO and OIL? I read something about these two etfs saying according to their operating method, the return will be a lot compared to the return on spot price of oil.

Best,
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timwest PRO DaQuant
2 years ago
Well, what you need to see to get USO to go up is for the front month contract to go to a premium to the next month, then roll into the next contract at a lower price. Then repeat the process many months in a row. For the last few years, however, this process has destroyed capital as the front month has gone to a discount and the funds end up selling low and re-buying high. It has been a train wreck in slow motion so far. Keep an eye on that important information to determine if USO will be a winner or not. I am looking at oil companies to get exposure down here in Oil. Nothing is easy, but I would try selling puts against crude oil futures and that way you can make money if crude just goes sideways from current levels. Gold could also go down to make this ratio come back in line, but I'm not a fan of shorting gold when the central banks of the world are creating credit like there's no tomorrow.
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DaQuant PRO timwest
2 years ago
Thanks for the great analysis!
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Lanmar PRO
2 years ago
In 1986 it reached as high as 36, in 88' it was 32. Definitely an opportunity here at some point.
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timwest PRO
a year ago
I love the volatility in this ratio: It fell from 25 to nearly 19, then rocketed up to 30 briefly. This is still a good time to sell Gold and Buy Crude. I just made a chart to show that you can also sell your gold to buy silver, which is historically low relative to gold.
GOLD/SILVER RATIO FLASHING A MAJOR SIGNAL
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The trade did pay off for a while. Now astronomically high again.
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aibek
a year ago
Tim, agree with your analysis although by other reasons.
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