Crude Oil, Gold, and Silver – Important Timing Connection?

Based on the March 11st, 2011 Premium Update. Visit our archives for more gold & silver analysis.

Recent developments in precious metals space raise series of questions in terms of sustainability of yellow and white metal moves in the foreseeable future. In order to gauge near-term precious metal moves, investors track precious metals’ relationship between currency fluctuations, stock market influence and crude oil prices. In this essay we would like to provide you with our thoughts regarding crude oil.

In fact, several Subscribers have recently asked us to comment on the relationship, if any, between the prices of crude oil and gold and silver’s price, so here we are. Charts are courtesy of http://stockcharts.com.

The above chart shows the price movements for all three over the past five years and a close inspection seems to indicate that there are no conclusive patterns which will contribute in any way to market timing signals.

Oil, silver and gold are of course all commodities. Generally, bull markets are often seen across numerous commodity sectors simultaneously and it’s therefore not surprising to see these three in uptrends at the same time. Please note that tops in oil correspond to tops, bottoms and sideways price movements in gold and silver. Bottoms in oil also correspond to tops, bottoms, and sideways price movements in gold. Consequently, a local top or bottom in oil does not necessarily have any short-term implications for Gold and Silver Speculators.

Let’s take a closer look at the gold:oil ratio.

The above chart does not provide any information which seems to be useful in predicting gold’s future price performance.

Declines in the ratio – such as the one that we’ve seen recently – mostly correspond to higher gold prices without any specific details. However, since gold is in a strong bull market, then even random events would correspond to higher gold prices on average. Consequently, there’s nothing about the ratio that would make us use it as a trading tool and we do not feel that this ratio is one which should be monitored on a daily basis.

We’ve checked the silver to oil ratio as well.

In the silver / oil price ratio, there is little seen here as well, but we do note the formation of a cup-and-handle pattern. If this bullish pattern further develops and silver breaks out of it, much higher silver prices could be seen. Still, this formation is a long-term one, which means that the bullish implications are also long-term. Silver is however already in a very strong bull market, so this is nothing new.

Summing up, crude oil, gold and silver are all indispensible commodities, but that doesn’t necessarily mean that there has to be a significant timing-related link between them. In this case, it seems that gold:oil and silver:oil ratios are not really worth being followed on a daily basis. If you are interested in learning more about gold and crude oil from the long-term perspective, be sure to read our previous essay entitled Gold and Crude Oil. Should You Be Afraid?

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