In today’s article, we will talk about what so-called “Gold/Oil Ratio,” what does it mean, who uses it, which assets classes that has a correlation with this ratio and how can you use it to predict some market movements.
What Does the Gold to Crude Oil Ratio Mean?
What this ratio infers is that when the current ratio is below 15.4, gold is either too cheap, or oil is too expensive. When the ratio is greater than 15.4, oil is either too cheap, or gold is too expensive. Did you understand anything? No. I know. Let’s move on anyway.
How to Use the Gold to Oil Ratio?
Notice how every time Gold / Oil Ratio find a new top, Crude Oil and S&P500 usually changes the trend from positive to negative.
On the other hand, every time Gold/Oil ratio find a new bottom, Crude Oil, and S&P500 usually changes the trend from negative to positive.
The Gold/Oil Ratio also has proved that it can predict the economic and financial crisis. How? By looking at the chart below, whenever the ratio posts a new record high, it was followed by a notable event which is still remembered throughout the history.
Where To Find Charts?
There are many websites that provide this chart. However, if you couldn’t find it, you can easily export your MT4 data to excel. You need the daily close price for Gold and Crude Oil.
Once you export the data, you need to divide the daily closing price of gold by the daily close price of Oil. Once you do this, you will get the ratio. Then, you can create a chart just like the one above. Yet, finding a live chart would be even better to monitor the price change on a daily basis, especially where there is a significant move in either Gold, Oil and even US stocks.
We will cover this subject again in December webinars. Stay Tuned