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Is Crude Oil Ready for a Breakout, and Would It Help Gold?


A look at crude oil and how it could impact the price of gold in the near future.


Let us move on to the yellow metal itself and have a look its long-term chart

Click to enlarge

Here, the situation has changed very little as gold's price pretty much moved back and forth last week. The long-term cyclical turning point is now a few weeks away and could very well coincide with the end of gold's current decline. Whether this holds true or not, it seems likely that gold's current decline will continue for now, at least as it appears to not yet be completed.

Let's have a look at Dow (INDEXDJX:.DJI) to gold ratio chart now.

We see the ratio getting close to a key resistance level. This is due almost entirely to the Dow's rally last week. The problem here is that if gold prices decline and stocks continue to rally (a real possibility), this ratio could break out above the declining resistance line and move toward 12.5, thus leading to even bigger declines in gold (below $1,200). I do not feel that such a breakout will be confirmed, however.

Summing up, a decisive breakout in crude oil could trigger a significant rally in gold. However, since we saw several failed attempts in crude oil in the past months, it seems best to wait for a confirmation of the breakout before discussing meaningful bullish implications for gold. For now, it still seems that the final bottom is not yet in.

For the full version of this essay and more, visit Sunshine Profits' website.

Twitter: @SunshineProfits
No positions in stocks mentioned.
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