I noticed the traffic on Gold related instruments was relatively high yesterday. Lots of players were looking for a technical bounce in the metals to play.
I haven’t blogged on the topic since July 7th, but looking back…not sure that timing could have been much better.
In my last Boot Camp, we spent an entire evening focused on Gold and Silver. One chart we spent a bit of time on was the $GOLD:$WTIC spread, which topped it’s most extreme value earlier this year.
This chart suggests that earlier this year, you could have bought 47 barrels of oil with an ounce of gold. The longer term average of this spread is more like 15.
Off of this analysis I told folks to short gold against an oil long. How has that trade been working recently?
If you flip the spread here (hat tip @bcanals) this looks like tip of the iceberg movement…
He also pointed out the following chart, which is $SPX:$GOLD ratio. Looks like my sentiment chart, no?
Been thinking about these since last night. Very intriguing especially after the popularity of these instruments yesterday.
Hold on, OA
I understand what you are trying to do with these ratios, but want to share some of my own observations.
IMHO you can’t just pick such different assets as Gold and Oil for ratio analysis, because Gold is permanent material, while Oil is a disappearing one. Meaning – 2016 Oil has been produced and consumed already, thus bearing no impact now on ‘future oil’; while 1985 Gold is still around and will continue to impact future supply indefinitely.
Basically, whatever reasoning and correlation you see in Gold:OIL is based on faulty logic and will lead to erroneous assumption sometime in a future.
SPX:GOLD is a different story… especially considering that you take Dollar out of equation. I used it for many years – there is a treasure trove of valuable discoveries in this ratio…
tips hat
No such thing as faulty logic. Logic either works until it doesn’t, or doesn’t until it does. Either way it’s perception based.
Logic:
“reasoning conducted or assessed according to strict principles of validity”
Tomatoes need water to grow. Valid
What you refer to as ‘perception’ is investing based on feelings, hunches and vague forecasts. Then you are correct – sometimes it works, sometimes it doesn’t and you can’t tell the two apart beforehand. … invalid…
This isn’t a new concept, dumbshit. Google it before you question someones efforts.
Rather, hit your blogspot and tell the world why those of us that have used this for decades should stop using our methods because you don’t understand it.
Fuck this
Dumbshit…?
What did I ever posted that wasn’t a constructive idea or respectful opinion.
I’m not telling anybody what to do
I don’t give a fuck
Yeah, faulty logic. That’s an insult to me.
If someone takes the time out of their schedule to post an opinion and you tell me my thinking is flawed, I’d cut you if you were nearby.
To simply disagree and state your reasons is fine. “Flawed logic” pissed me off.
LMAO. Dude, I didn’t randomly pick shit out. Traders have used this for decades. Google “Gold Oil ratio.” This has been around forever.
Faulty logic. Now I am offended.
Please, no offense.
I only put this out because I’ve seen ‘Gold:Oil’ ratio around – we probably read same articles and books – and my conclusions are vastly different from consensus. You know, I never talk shit, but knowing you as independently thinking individual, I wanted to point out this bit of variant perception.
Think nothing of it. Do your thing – you don’t need some yellow fruit to tell you whats what… lol
I can appreciate a different opinion, but telling me my logic is flawed…those are fighting words.
…”I’d cut you if you were nearby” Hilarious.
No one ever said of OA, “Gee I wonder if he agreed of disagreed.”
Wow, that escalated quickly. Miss one morning of checking the blog and come back to find people cutting each other… hahaha.
I agree that if you were to use gold in these ratios as just a physical commodity like copper or aluminum, then the ratios would be flawed and unreliable. But since gold is about the most universal currency we have it is just as viable when compared to any other asset besides the SPX. Fits the goal of removing the Dollar from the equation for a different perspective.
I’ll go back to waiting for the yellow stuff to die now…thanks.
Market feels like it’s on the verge of rolling over for days. Hopefully that’s just the contrarian indicator in me talking
Now you are commenting with the knowledge that you are a shitty commenter in mind. This totally fucks up my universe.
Well yeh, if you and ur lemmings didn’t comment on it, I wouldn’t have to acknowledge it and all would’ve been good in this world. Blame urself. Haha
Run out of “reply’s”.
I don’t disagree and did not intend to offense.
I’d like to take ‘faulty logic’ back and re-phrase it somehow…
If you were nearby… I would buy you a beer.
Friends?
🙂
Ok.
I was joking about cutting you. But wanted to get my point across.
Cheers.
$UGAZ ftw.
Bitcoin looks like it’s ready for a move. Anyone trading it?
https://postimg.org/image/6t04h4olv/
Me. I own it, haven’t been trading it. Long from back in May.
Nice entry. Are you using Coinbase?
http://ibankcoin.com/option_addict/2016/05/18/bidding-on-bitcoins/
Yeah, Coinbase.
I love it when you post on gold.
I only did because my twitter feed was filled with Gold condoms, ready for a circle jerk.
Yeah lots of interest right now. People have especially strong feelings about gold. Thanks.
Yeah, look what happened to them, and how quickly it happened.
Long ways to go.
Long ways to go, down? I read your post, but the conclusion wasnt clear to me. Sounds like you are seeing Gold as overpriced; particularly relative to Oil, SPY? Thanks for any calrification.
Honestly, gun to the head…I would take a quick long based on my competitive side. If I queried 10 of yesterday’s bulls, how many would buy again today?
Rather buy silver, of course.
The way the island was formed…with a gap up creates future bag holders which weighs down price…as seen today.
Like I said, had to trade today…quick long. Would prefer shorting that rally though as I think these head lower over time.
Thanks Man. Great thoughts. I dont always agree; but I respect your style, you have a remarkable knack for reading people.
GLD and GDX have another leg down before a reversal.
Oil and gold can move up up together, if oil moves up faster than gold, the ratio OA points out still moves in the direction forecasted. Seems like most people are seeing it as an either/or situation.