tyke:
As always, your questions make me nervous! As you know, I do think that gold is in the early stages of a major bull market, but it's not yet been confirmed by the break out compared to all other asset classes. The most critical ratio to me is the gold/oil ratio -- i.e. how many barrels of oil can you buy for one ounce of gold:
stockcharts.com[w,a]whlayyay[pb14!b52][vc60][iut!ll14!lah12,26,9!la12,26,9!lb14]
At only 7.4, this is at an **all-time-low**. i.e. So far, the oil bull has been far stronger than the gold bull. But this will change suddenly if history is any guide. There's a great article on this by Adam Hamilton at:
kitco.com
His key point is that if crude corrects to $42 and the gold/oil ratio reverts to its historic mean of 15.3, then the POG will move to $640. This is a "minimum" target for gold. He also demonstrates that the current gold/oil ratio is about 3 standard deviations from its historic average -- and statistically that should happen only 0.3 percent of the time. i.e. The ratio is way outside the bounds that should bind it 99.7% of the time, and a sharp reversion to the mean is "inevitable".
Who knows... oil may just continue on up to $100, but in that case it's hard to see gold not following. And a more likely scenario is that oil stays around $60 a barrel but the gold/oil ratio moves above its historic average -- to 20 say -- with gold at $1,200 an ounce! :^)
Best regards,
Howy |
