NFTRH Update 7.3.13, Crude Oil & its Implications

Crude oil as represented by the USO fund, is breaking out today.  The Gold-USO ratio is declining.  This is a trend that does gold mining no favors whatsoever, fundamentally, since they are so energy dependent.

uso
USO daily w/ GLD-USO ratio

Today’s rise is apparently due to strife in the middle east and would therefore be suspect.  But recall that a breakout of this daily pattern breaks oil up and out of a much larger monthly Symmetrical Triangle.  In fact, WTIC broke out yesterday.  Here is the monthly chart we have been following from NFTRH 239:

wtic
WTIC monthly

This is a bullish chart, political strife or not.  As such, it is a negative indicator for the gold mining sector as long as this condition persists.  At the very least I’d expect this condition (again, if it persists and oil continues to outperform gold) to paint a gold sector rally (if that is indeed what we are on) as a ‘sell’ as opposed to being the rally to hold for a longer term.

We’ll track events closely, but I would advise that we tune out the gold bugs and commodity bulls that would try to link oil and gold together in some kind of inflationary hoopla.  Very simply, gold must out perform positively correlated commodities for the investment case in the miners to improve.  That includes crude oil, whether or not it is being driven by political as opposed to fundamental reasons.