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May 16, 2015

Oil, Silver to Gold Ratios

By Aibek Burabayev for INO

Gold/WTI Ratio: Free To Fly!


Chart courtesy of Tradingview.com

Today for the first time I will analyze this crazy ratio. Just look at the monthly chart above, compared to the dead market in the direct Gold/US dollar cross it is so wildly volatile. It jumps to either side easily like a bullet ricocheting.

This ratio is contained within a very wide range between 6 and 29 WTI barrels per troy ounce of Gold, highlighted in two blue parallel lines. For 12 years, Gold had been weakening compared to WTI Oil (highlighted by falling orange trendline). In between, only once in 1998, we can see a false break up of the downtrend which quickly lost its momentum and the ratio fell back below the line. Gold was falling despite the growing Gold/USD price. The metal almost doubled its price, but at the same time it appeared at the bottom of the ratio and what is more surprising is that when Gold tripled its USD price, it again touched the bottom at 6 barrels per troy ounce. Indeed, it was an Oil boom, not a Gold boom.

In September 2006, Gold finally unyoked from Oil's pressure, but the breakout was not explosive and the price made a classic return to the breach point at the 6 barrel level and then in 2008-2009 rocketed up right to the top of the range. Awesome move! It is worth noting that those days Gold was making a round trip from $900/oz to $700/oz and back to $900/oz and the main factor was the $100 Oil crash at that time.

In 2009, Oil rebounded sharply and the Gold/WTI ratio lost half of its value. From 2009 to 2014, the ratio was diving and surfacing around the so-called "waterline" (highlighted in black dashed line), which is marking the middle of the range.

The zigzags narrowed in 2014 and this shaped the symmetrical triangle pattern (highlighted in red) which was broken up in November, 2014. The ratio breached both the triangle to the upside at 16.50 and the "waterline" at 17.50. It should have reached the height of the triangle added to the breaking point with the target at 39.50, but it failed to go beyond the range.

Now the Gold/WTI ratio is coming back to the breaking point to accumulate enough momentum to get to the target. With Oil forecast to fall further below the $50 level and Gold to keeping above $1155, it is quite a possible outcome.

Gold/Silver ratio: Dream to fly!


Gold/Silver Chart courtesy of Tradingview.com

Last December I posted an article about the Gold/Silver ratio with a target of the diamond pattern at a sky high 109 oz.

As seen in the above weekly chart, the multi-year uptrend (highlighted in green parallel channel) from the diamond's break up is still intact, but the ratio has stopped its advance and is still at the same level as half a year ago, fluctuating within a widening 68-76 range.

The Gold/Silver ratio has been stuck for seven months now within a falling wedge (reverse–apex is expanding) pattern, highlighted in orange. It is a bullish pattern and there is a limited risk of a bottom crashing move as there are three good supports crossed on this level: green horizontal line of previous highs at 67.31 oz, uptrend and triangle's downsides at the 68 oz level.

The risk-reward is in favor of an upside breach above the 76 level and the target for the wedge is located in the 84 area. We should add the wedge's widest measure to the breaking point. In the meantime, both metals go synchronously and the ratio is almost unmoved, but the wedge will do its job sooner or later.

Courtesy Aibek Burabayev for INO.com


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Item Reviewed: Oil, Silver to Gold Ratios Rating: 5 Reviewed By: EconMatters