Friday, November 13, 2009
Reviewing some long term Gold/Oil Ratio charts back to the '70s. As I written of late, just to recap... Gold trades about 3 to 4 months ahead of oil. In the near term I see gold retracing to 1075 along with oil to $74 and the dollar ticking up to 76. (see prior posts). NOW...on the longer term outlook Gold should most likely hit $1200 and eventually $1300 in '10. Now looking at the historical range of the Gold/Oil Ratio (currently 14)..if the ratio were to remain here and gold rise to $1200, oil ($WTIC) would trade @ $85/$86. I see 12:1 as a level it would most like trend to, WHY? based on the dollar trending lower to 72. It could even trend lower, maybe 10:1...but to remain conservative I say 13:1 for now...OK! So let extrapolate? Gold at $1100 & the ratio at 13 oil should trade at $85, 12:1 $92. Gold at $1200 next.. 13:1 = $92 oil; 12:1 = $100. Now you do the math!
I remain bullish on gold & silver and believe more should be added to the oil sector, Transocean (RIG) & Pride Int'l (PDE) are my favorite plays.
It all rest on the US Dollar ($USD), President Obama is now in China, where he should be helping, but unfortunately he and his administration are hurting the dollar (see Kudlow video) and that just enforces my believe of a lower dollar, longer term and higher gold/oil prices.
*click chart to expand images