On Monday, the Federal Reserve Bank of San Francisco published a report, which indicated that central bank is growing closer to raise interest rates. As a result, the US Dollar Index, which tracks the performance of the greenback against a basket of six other major currencies, climbed to a 14-month high. Since then, ongoing expectations that U.S. interest rates will be rise sooner rather than later have been supportive for the U.S. dollar, making crude oil and gold more expensive for holders of other currencies.

Yesterday, the price of light crude bounced off an eight-month low and climbed to almost $94 per barrel, supported by expectations that the EIA weekly report will show another drop in crude oil supplies and inventories at a key storage hub of Cushing, Okla. would stay low for longer than previously expected. Meanwhile, today's government data disappointed market participants and crude oil hit a fresh multi-month low. What's next? Is it possible that the gold-to-oil ratio will give us some interesting clues? Let's examine charts and find out (charts courtesy of http://stockcharts.com).

Looking at the above chart, we see that now we have a similar situation to the one that we saw in 2012 (we marked it with red). Back then, a double top pattern triggered a sharp decline in the ratio, which resulted in a rebound in crude oil. Based on that event, we think that we'll see a drop in the ratio in the coming weeks - especially when we factor in the fact that the CCI and Stochastic Oscillator generated sell signals. On top of that, this bearish scenario is also reinforced by the current Elliott's waves structure.

In our opinion, during the last year, the ratio was trading in the wave 4 (it was bigger than the wave 2 and has a different structure, which is in line with the Elliott Wave Theory). Therefore, it seems to us that the wave 5 is still ahead us. What does it mean for crude oil? As you see on the above chart, in the previous years, local tops in the ratio corresponded to the bottoms in crude oil. We saw such situations in February and December 2009, September 2011, June and October 2012. Taking into account the fact that history repeated itself in all these cases, we think that another decline in the ratio will trigger an upward move in light crude.

And what about gold? In 2011 lower values of the ratio have translated to declines in this commodity. We also saw such price action since November 2012 until June 2013 and later at the end of the previous year. In March, the local top in the ratio corresponded to the 2014 high in gold and the ratio's local bottom in June appeared more or less at the same time as the bottom of the previous bigger correction in the commodity. All the above provides us with bearish implications and suggests that the final bottom in gold is still ahead us.

Thank you.

Nadia Simmons

Sunshine Profits‘ Contributing Author

Oil Investment Updates
Oil Trading Alerts

* * * * *

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.

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

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.