Crude-Gold Relationship at an Important Juncture

In early 2016 amid the global commodity/EM crash the ratio of crude oil vs. gold reached a historic, ~135-yr low, per the chart below.

However, per the falling resistance in the monthly chart above, as well as the more detailed weekly chart below, that ratio is now at a critical juncture.

What’s also interesting about crude since 2008 is how closely its cycle resembles the period from 1980-summer-1987.  Check out the chart below.

In that earlier cycle crude peaked at $40 in 1980, fell into early 1985, rallied for a head-fake break-out and then crashed into 1986.  This sounds incredibly similar to what happened over the 2011-2016 period.  Note that both 1980 and 2011 marked historical commodity highs.

Regardless, after bottoming at ~$10 in 1986 crude managed to retrace just over 38% of its decline from $40, peaking at ~$23 in summer 1987.  At its current ~$72, crude has nearly retraced 38% of its 2008-2016 decline.  To be precise, a full 38% retrace would come at ~$74.

After achieving its 38% fib retrace in summer 1987 crude collapses ~42% over the ensuing year.  Its summer 1987 peak also preceded by a month or two the Aug-87 peak and subsequent crash in US equities.

That crude is paralleling its cycle from 30 years ago is quite interesting; that it happens to coincide with 1987 even more so, especially considering so much of our other work is doing the same, such as this chart showing the past 7 years’ worth of commodity vs. equity under-performance is as bad as it was going into that same period.