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Crude Oil, Gold, and Silver – Important Timing Connection?

Commodities / Gold and Silver 2011 Mar 12, 2011 - 06:20 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleRecent developments in precious metals space raise series of questions in terms of sustainability of yellow and white metal moves in the foreseeable future. In order to gauge near-term precious metal moves, investors track precious metals’ relationship between currency fluctuations, stock market influence and crude oil prices.  In this essay we would like to provide you with our thoughts regarding crude oil.


In fact, several Subscribers have recently asked us to comment on the relationship, if any, between the prices of crude oil and gold and silver’s price, so here we are. Charts are courtesy of http://stockcharts.com.

The above chart shows the price movements for all three over the past five years and a close inspection seems to indicate that there are no conclusive patterns which will contribute in any way to market timing signals.

Oil, silver and gold are of course all commodities. Generally, bull markets are often seen across numerous commodity sectors simultaneously and it’s therefore not surprising to see these three in uptrends at the same time. Please note that tops in oil correspond to tops, bottoms and sideways price movements in gold and silver. Bottoms in oil also correspond to tops, bottoms, and sideways price movements in gold. Consequently, a local top or bottom in oil does not necessarily have any short-term implications for Gold and Silver Speculators.

Let’s take a closer look at the gold:oil ratio.

The above chart does not provide any information which seems to be useful in predicting gold’s future price performance.

Declines in the ratio – such as the one that we’ve seen recently – mostly correspond to higher gold prices without any specific details. However, since gold is in a strong bull market, then even random events would correspond to higher gold prices on average. Consequently, there’s nothing about the ratio that would make us use it as a trading tool and we do not feel that this ratio is one which should be monitored on a daily basis.

We’ve checked the silver to oil ratio as well.

In the silver / oil price ratio, there is little seen here as well, but we do note the formation of a cup-and-handle pattern. If this bullish pattern further develops and silver breaks out of it, much higher silver prices could be seen. Still, this formation is a long-term one, which means that the bullish implications are also long-term. Silver is however already in a very strong bull market, so this is nothing new.

Summing up, crude oil, gold and silver are all indispensible commodities, but that doesn’t necessarily mean that there has to be a significant timing-related link between them. In this case, it seems that gold:oil and silver:oil ratios are not really worth being followed on a daily basis. If you are interested in learning more about gold and crude oil from the long-term perspective, be sure to read our previous essay entitled Gold and Crude Oil. Should You Be Afraid?

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

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    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Comments

Josh
13 Mar 11, 04:02
No correlation? Really?

I enjoy how the author chose to strategically cover the lower part of the first graph with his comment, thereby covering the similar declines of oil and silver.

Gold, silver and oil are highly correlated, just look at the nearly equal behavior that occurred during the past stock market crash of 2008-2009 using the gold-oil and silver-oil ratios (figures 2 and 3). While the silver-oil and gold-oil ratios do not help with short-term decisions, we can most certainly conclude that a large price rise in oil will inevitably create a double-dip recession crash, sending ALL commodities lower.

The strength of the dollar is still tied to oil and gold is still tied to the dollar.

It's staring us all in the face, but the author chooses to ignore it. But go ahead, keep telling people to buy at high prices to time your own sell out.


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