Gold (GLD) has been in the dumper. Ever since it broke below 1550 it has had some big legs down and then a slow grinding recovery before it starts down again. Is it over now? I don’t know.
And what about Crude Oil (USO)? It has had its own ups and downs. Currently it is on the verge of a beakout higher.
The problem, of course, is that both have been highly volatile. That's great news if you are a day trader, but for a swing trader it simply leads to chop.
So how do you decide whether to choose yellow or black Gold? One way to deal with it is to look at things in pairs. The ratio of GLD to USO, for example, has behaved in a much more civilized manner. The weekly chart below shows the failed break out of a two year symmetrical triangle before it fell to the downside. It is now pursuing the target to 2.20. Along the way it sits in a position that makes it interesting for a potential trade.
At the 3.83 ratio, which has been important for over 4 years, the major resistance and support levels are quite far away in either direction. Watch for the reaction to the green line.
A hold and reverse has smooth sailing up to a ratio of 4.44 or 4.70. A continued breakdown sees support next at 3.19 and then 2.61. The picture favors the downside, with Gold giving up more ground to Oil, but be prepared. In rough terms, 400 shares long (short) of USO for every 100 shares short (long) of GLD on a move higher (or lower) in the ratio could yield a dandy return.
Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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Commodity Face-Off: Checking The Gold To Oil Ratio
Published 05/21/2013, 08:14 AM
Updated 05/14/2017, 06:45 AM
Commodity Face-Off: Checking The Gold To Oil Ratio
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