Will a higher oil price break gold out of its range?

The oil price looks like it might be breaking out. Today oil has traded as high as $105.8 – we have to go all the way back to the beginning of May 2011 the last time oil has reached these levels.

JPM have issued a note today raising their year end target for WTI oil to $120. Iran over the weekend said that it was no longer going to sell oil to the UK or France. The UK gets 1% of its oil from Iran and france about 4%.

But more importantly than the noise over potential attacks on Iran, the central banks of the world are in full-on ‘print-mode’ – and it looks like oil isn’t going to hang around any longer for the details and is making a bid to surpass the highs seen at the start of 2011 ($115).

As we noted last week gold is trading in a tight range – $1704 marks the bottom and $1755 marks the top. Will an oil break-out pull gold higher and bring in more people to push gold back above $1800?

A quick look at the oil price over the past few years shows just how volatile and quickly it can move. In its latest spike higher the oil price has moved some 40% in a matter of months.

Oil price:

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A look at a gold chart over the same period shows that when oil is rallying gold goes along for the ride – but when oil pulls-back gold’s fall is much less than that of oil.

Gold price:

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We can see that during that near 200% move in oil from the start of 2007 to August 2008 gold rose some 66%.

Then when oil moved some 245% from the start of 2009 to mid-2011 gold rose nearly 100%.

So if the lows are in for oil back in October 2011, which they certainly appear to be, the 40% move in oil to date is probably no where near done – especially with the Iran ‘problem’ hanging heavily over the market.

There are just 7 trading days left in February and if gold is going to break-out of that range gold really needs to close the month above the $1756 level – this was the closing highs from December 2011 – a quick ‘pop’ in the oil price in the next few days might be all the incentive gold needs to close above $1756.

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Link to this article: : http://www.goldmadesimplenews.com/gold/will-a-higher-oil-price-break-gold-out-of-its-range-6179/

Posted by on Feb 20 2012. Filed under Analysis, Gold News, Markets. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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