Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

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

Commodities / Crude Oil Apr 19, 2016 - 12:13 PM GMT

By: Nadia_Simmons

Commodities

Although the world's largest oil-producing countries met this weekend in Doha, they failed to reach a deal to freeze output at Jan levels as Saudi deputy crown prince Mohammed bin Salman sustained earlier statement that Saudi Arabia would freeze the level of its oil production only if all other major producers (including Iran) did the same. Although Iran supported the freeze, the country didn't agree to cut production until it raises its output to around 4 million barrels per day (to the pre-sanctions levels). What does it mean for crude oil? In our opinion, such developments suggest a renewed battle for crude market share, which would likely translate into lower values of the commodity in the coming days or even weeks. Will our interesting ratios confirm this scenario? Let's jump right into charts (chart courtesy of http://stockcharts.com) and find out.


Let's start today's article with the oil-to-silver ratio.

On the above chart, we clearly see that although the ratio moved slightly above the long-term red declining line, this improvement was only temporary and the ratio reversed, closing the previous week under this key resistance - similarly to what we saw several times in the past. As you see in all cases, oil bulls were not strong enough to push the ratio higher, which resulted in reversal and declines - not only in the ratio, but also in crude oil. Therefore, looking at the above chart, we think that anther reversal is just around the corner - especially when we factor in the fact that the Stochastic Oscillator is very close to generating a sell signal, which is another negative signal.

Having said the above, let's take a closer look at the gold-to-oil ratio.

The first thing that catches the eye on the above chart is strong negative correlation between the ratio and the price of crude oil. In the previous week, the ratio declined to the 200-day moving average, which in combination with the current position of the CCI and Stochastic Oscillator suggests that another reversal in the coming day(s) is very likely. Why? When we examined the above chart, we noticed similar situation in Oct and Nov 2015. Back then, such combination encouraged bears to act, which translated into higher values of the ratio and declines in crude oil. Therefore, if the history repeats itself once again, we'll likely see another downward move in light crude.

Finishing today's article, we would like to draw your attention to the non-USD (WTIC:UDN ratio) chart of crude oil. As a reminder, UDN is the symbol for the PowerShares DB US Dollar Index Bearish Fund, which moves in the exact opposite direction to the USD Index. Since the USD Index is a weighted average of the dollar's exchange rates with world's most important currencies, the WTIC:UDN ratio displays the value of crude oil priced in "other currencies".

From the medium-term perspective, we see that the red dashed resistance line stopped oil bulls and triggered a pullback, which approached the ratio to the 50% Fibonacci retracement earlier this month. Despite this drop, WTIC:UDN rebounded, invalidating earlier breakdown under this line, which resulted in an increase above the March high and a climb to the long-term red declining resistance line (based on Sep 2014 and Jun 2015 highs). Taking this fact into account, the proximity to the 50-week moving average and the current position of the indicators, we think another downswing is just around the corner.

Summing up, as you saw on the above charts, all our ratios suggests that lower values of crude oil are more likely than not. This scenario is also supported by the fact that all hopes of agreement between OPEC members and Russia to freeze output faded after weekend's failure, suggesting a renewed battle for crude market share and lower values of the commodity in the coming days or even weeks.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski
Founder, Editor-in-chief

Sunshine Profits: Gold & Silver, Forex, Bitcoin, Crude Oil & Stocks
Stay updated: sign up for our free mailing list today

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons 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, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, 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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules