A Potential Shift in Relative Performance Between Gold and Oil

Gold has been a disaster lately, with the past few days seeing some large selling take over in this shiny metal market. I wrote about gold hitting resistance the day after gold ($GLD) peaked back in March and more recently last week I highlighted the triangle pattern that was forming on the daily gold chart with momentum hitting previous resistance. So where does gold stand now?

With the recent increase in weakness for gold ($GC_F) I wanted to show one bright spot that may be developing, at least compared to oil. Below is a chart of the relative performance between gold and crude oil ($CL_F). As a reminder, when the green line is rising we know that gold is outperforming oil. That could mean gold is rising more or gold is falling less than oilit doesn’t mean gold prices will start rising – this is just looking at the ratio between the two commodities.

The ratio right now is testing previous support going back to 2013. In late December and in August and September of last year we saw the ratio between gold and crude oil bottom around the 12.2 level. We also can see that the Relative Strength Index (RSI) as shown in the bottom panel just kissed the ‘oversold’ 30 level. Back in August ’13 we saw the RSI spend some time under 30 before seeing a shift in relative performance. However, if we go back further we can see that sometimes we just see a day or two of being ‘oversold’ in momentum before a trend change occurs in the ratio.

So with the relative performance ratio between gold and oil testing support and momentum being nearly ‘oversold’ its possible we see a shift in relative performance to begin favoring gold. We’ll see.

gold oil

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.