The gold rally continues to defy US dollar strength.
Meanwhile, oil prices are looking ready to plummet further.
The price of oil is one of the biggest costs of gold producers.
So, when oil prices fall, so do gold producers’ costs…and their margins rise.
Simple, really.
But it’s why the gold sector could rally further than most expect.
Some smaller gold developers still lag the larger producers.
But watch this space — a rising gold/oil ratio should ignite the animal spirits in investors to chase those stocks higher.
Trumps ‘drill baby drill’ goals as well as his pressure on Saudi Arabia to open their spigots could drive down the oil price further.
Brent crude has held above US$70 for over two years now. I reckon the next test of that level could see a dramatic break lower in the price.
That should see the gold/oil ratio spiking even higher, even faster. If history is anything to go by, that could set a fire under the gold sector.
In today’s Closing Bell video, I look at long-term moves in the price of gold compared to the US Dollar Index…then the bearish set up in oil prices.
I also compare the gold/oil ratio to the Canadian and Australian gold sectors. That will show you how often a rising gold/oil ratio has preceded big jumps in gold stocks.
So, if you are holding gold and wondering when to take profits, or you are eyeing off a small developer wondering whether to jump in, this Closing Bell is for you.
Regards,
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Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps
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