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Gold/Oil Ratio, Forward price direction indicator for gold
flower
post Posted: Sep 19 2013, 02:15 PM
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Overnight Bernanke gave in to the inevitable and realised the FED is well and truly trapped, will handball the problem to somebody else, probably Yellen and will probably disappear into history in the New Year.

Meanwhile, as the gold/oil ratio was signalling that gold was oversold yesterday as a result of Bernanke it then put on an immediate USD60.

Today the gold oil ratio still sits at 12.60, signalling gold still oversold/ not over valued, so it is a perfectly reasonable suggestion to make that the POG could rise much higher than many think over the next few months, with the end result of many more months of money printing surely inflation will be the next propellant of the POG, hope some members are already loaded up with that good ASX gold stock--watch the all in cost of production always.
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Attached File  Bernanke.gif ( 28.08K ) Number of downloads: 6

 




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Combining Fundamental comments with Fundamental charts.
 
arty
post Posted: Sep 8 2013, 11:47 AM
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In Reply To: Optionsman's post @ Sep 8 2013, 01:15 AM

That's the essence, OM smile.gif

As far as the reference to IncredibleCharts is concerned: http://www.incrediblecharts.com/economy/gold_oil_ratio.php
  • While IC offer great T/A education, their providing a reference doesn't mean the underlying assumption makes sense. Like most software providers, Colin Twiggs provides features that enhance the program's appeal to potential clients.
  • The article originates from 2005 or 2006.
  • It refers to "Buying opportunities (for gold) when the gold-oil ratio turns up at/below 10 barrels/ounce"
  • and "Selling opportunities when the gold-oil ratio turns down at/above 20 barrels/ounce"
  • The chart, conveniently copied by flower, runs from 1973 to 2006 and suggests buying around 2000 and 2005/06.
  • You have to read on to find the caution that it's actually useless: "A sharp drop in crude prices in late 2008 distorted the ratio, causing an incorrect sell signal. Since then, from mid-2009 to 2011, the ratio has oscillated in a narrow range between 12 and 18." and "Gold is generally quoted in US dollars per ounce of gold; so any fluctuations in the strength of the dollar are likely to be reflected in the dollar price of gold."
  • The updated indicator suggested buying Gold in 2008, selling out in early 2009 and never buying again since then.

Attached File(s)
Attached File  GOR_08_09_13.gif ( 100.22K ) Number of downloads: 8

 




--------------------
I trade daily, but I am not a licensed adviser. Whether you find my ideas reasonable or not: The only person responsible for your actions is YOU.
I follow two rules: (1) There are no sacred truths. All assumptions must be critically examined. Arguments from authority are worthless. (2) Whatever is inconsistent with observed facts must be discarded or revised. We must understand the Market as it is and not confuse how it is with how we wish it to be. (inspired by Carl Sagan)
 
Optionsman
post Posted: Sep 8 2013, 01:15 AM
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In Reply To: flower's post @ Sep 7 2013, 05:55 PM

Sorry Flower but no its makes no sense to me whatsoever. Who cares how many barrels of oil an ounce of gold can buy? Why on earth would that indicate if gold is "undervalued" or "overvalued"?

I could plot the same type of chart but have gold versus pork bellies instead, couldnt I? And then I could also say at a certain ratio gold is undervalued. But is this a predictor of the gold price? No, I dont think so.

I suggest you look at supply and demand instead, like Arty suggests

OM

 
arty
post Posted: Sep 7 2013, 06:25 PM
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In Reply To: flower's post @ Sep 7 2013, 02:47 PM

QUOTE
You keep banging on about economics 101--what [...] has that to do with anything?

I thought I couldn't have made the point any clearer; Optionsman and Mookie appear to have "got it". You are the only one in denial around here. If you can't accept that Economics is a Science, keep banging on about flat earth and other atavistic Stone Age beliefs.



--------------------
I trade daily, but I am not a licensed adviser. Whether you find my ideas reasonable or not: The only person responsible for your actions is YOU.
I follow two rules: (1) There are no sacred truths. All assumptions must be critically examined. Arguments from authority are worthless. (2) Whatever is inconsistent with observed facts must be discarded or revised. We must understand the Market as it is and not confuse how it is with how we wish it to be. (inspired by Carl Sagan)
 
flower
post Posted: Sep 7 2013, 05:55 PM
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In Reply To: Optionsman's post @ Sep 7 2013, 04:24 PM

QUOTE
Couldn't agree more Arty. Well said.

Using an "average" gold:oil price ratio to make investment decisions is pretty unwise IMO.


Answer me one question after looking at the enclosed chart: Does this make any more sense to you? Buy when gold is undervalued (11.86), stay with it when fairly valued (13.86), then watch for the ratio go to say about 17 or more and sell....?

Nothing magical, just dividing the spot price of gold in USD by the spot price of WTI oil, and then recording same for back reference performance.

btw just saw your earlier one, there are countless variations but to be of any long term value (10 yrs plus) you must use the same ratio, Gold to DOW, Gold to Oil etc etc, google for the list, but please understand any ratio is ONLY to be used as an INDICATOR not a trade execution tool --which is your privilege and yours alone, ie you don't have to follow anybody--think for yourself----find what works for you! (Gold is my particular tipple of choice rolleyes.gif )
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Attached File  ratio_overview.gif ( 22.8K ) Number of downloads: 10

 




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Combining Fundamental comments with Fundamental charts.
 
Optionsman
post Posted: Sep 7 2013, 05:40 PM
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In Reply To: flower's post @ Sep 7 2013, 10:16 AM

Flower, why focus on a gold to oil price ratio? Why not use gold to copper? Or gold to corn? Or pork bellies to uranium?

There are many things you can plot on a chart. Only few have any importance.


 


Optionsman
post Posted: Sep 7 2013, 04:24 PM
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In Reply To: arty's post @ Sep 7 2013, 01:58 PM

Couldn't agree more Arty. Well said.

Using an "average" gold:oil price ratio to make investment decisions is pretty unwise IMO.

 
flower
post Posted: Sep 7 2013, 02:59 PM
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In Reply To: Mookie's post @ Sep 7 2013, 01:08 PM

QUOTE
Seems to be some discussion on the internet about it but if Arty says it's rubbish with absolutely no supporting evidence then I suppose I should believe him...


Why icon14.gif thumbdown.gif



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Combining Fundamental comments with Fundamental charts.
 
flower
post Posted: Sep 7 2013, 02:47 PM
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In Reply To: arty's post @ Sep 7 2013, 01:58 PM

QUOTE
Check out IC's chart of the GOR: Spikes aside, the overall trend has been down since the 1990's. And even before then, the ratio has made consistently Lower Highs since the mid-80's.

What does that tell us?
Relative to gold, the price of oil has been rising.

Is that surprising?
Not to me. Remember: Every ounce of gold ever mined is still in existence - anywhere in the world, since the Stone Ages, when the early humans attributed some magic to gold's incorruptibility.
In contrast, every barrel of oil ever pumped up has been consumed, burned, turned into plastic, road surface, car tyres, ...

Google "peak oil" for evidence when oil will be exhausted. Its supply is already diminishing.

Economics 101: Demand rising. Supply falling. Does it take a genius to figure our what the price is going to do?


arty, all the above has got sfa to do with what we are discussing which is the ability or otherwise of the use of the gold/oil index in identifying whether gold is either midway, overbought or oversold, ie if one was in a gold stock like NST which broadly tracks the gold price--should one be holding in the trade, be not contemplating it, or be out in the broadest possible sense.

In this enclosed 4 year daily chart of gold in USD each and every 34 Day TP equates to a trading opportunity, long or short, presumably you cannot dismiss that fact?

You keep banging on about economics 101--what in the name of our soon to be deposed PM has that to do with anything?

Either gold in USD is midway (say 14,) overbought (say 25) or oversold (say 10), thus, all things being equal an ASX stock that broadly tracks gold in USD is also either midway, overbought or oversold.

Seems that simple to me.
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Attached File  sfa.gif ( 25.05K ) Number of downloads: 3

 




--------------------
Combining Fundamental comments with Fundamental charts.
 
arty
post Posted: Sep 7 2013, 01:58 PM
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In Reply To: Mookie's post @ Sep 7 2013, 01:08 PM

Check out IC's chart of the GOR: Spikes aside, the overall trend has been down since the 1990's. And even before then, the ratio has made consistently Lower Highs since the mid-80's.

What does that tell us?
Relative to gold, the price of oil has been rising.

Is that surprising?
Not to me. Remember: Every ounce of gold ever mined is still in existence - anywhere in the world, since the Stone Ages, when the early humans attributed some magic to gold's incorruptibility.
In contrast, every barrel of oil ever pumped up has been consumed, burned, turned into plastic, road surface, car tyres, ...

Google "peak oil" for evidence when oil will be exhausted. Its supply is already diminishing.

Economics 101: Demand rising. Supply falling. Does it take a genius to figure our what the price is going to do?



--------------------
I trade daily, but I am not a licensed adviser. Whether you find my ideas reasonable or not: The only person responsible for your actions is YOU.
I follow two rules: (1) There are no sacred truths. All assumptions must be critically examined. Arguments from authority are worthless. (2) Whatever is inconsistent with observed facts must be discarded or revised. We must understand the Market as it is and not confuse how it is with how we wish it to be. (inspired by Carl Sagan)
 
 


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