Bespoke Investment Group

Gold Closing in on 20% Above 200-Day Moving Average

Gold's move over the past couple of months has been pretty incredible but not without precedent.  As shown in the first chart below, the most recent leg up for gold has put it at 19% above its 200-day moving average.  In the second chart, we highlight the historical 200-day moving average spread for gold.  As recently as 2006 and 2008, the 200-day spread moved well above 25%, and back in 1980, the spread briefly got up to 136%!  Gold is definitely overbought right now, enough so that the risk/reward tradeoff in the short-term is probably favoring the risk side.  However, it has gotten much more overbought in the past than it is now, so it could still go higher before correcting.

 

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Crude Oil Inventories Back on the Upswing

After last week's much larger than expected drawdown in oil inventories, this week's report showed a partial rebuild.  While the consensus forecast was for a build of 1 million barrels, the actual increase was much greater at 1.762 million barrels.  As a result crude oil prices are getting whacked with oil trading down more than $2.  Heading into the coldest part of the year, oil inventories remain well above their historical average.

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Gold Up Eight Days in a Row

With all the hoopla surrounding gold recently, it should come as no surprise that the commodity is currently riding an eight-day winning streak.  The current run represents the seventh time since 1980 that gold has had a streak of eight or more consecutive days with a gain.  As shown below, the only time one of these streaks went for more than eight days was back in 1982 when the ninth day was also positive (on the tenth day it fell 5.7%, or $63 in today's prices).  Looking out over the next week, there has been little consistency in the results as periods of negative and positive returns have been evenly split. ,

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Gold Compared to Silver and Platinum

Gold has been the talk of the town recently, with everyone wondering if the current rally is a bubble waiting to pop or just the beginning of a run to much higher prices.  While gold is getting the attention, its sister metals -- silver and platinum -- have actually been outperforming.  Below we provide historical charts of the ratio between gold and silver and gold and platinum.  When the line is rising, gold is outperforming, while gold is underperforming when the line is declining.  As shown, late last year both silver and platinum lost big ground to gold, with platinum and gold even reaching parity at one point.  During the metals rally this year, however, silver and platinum have actually done better than gold.  (See SLV and DBS for silver ETFs and PTM for a platinum ETF.)

Bespoke's Commodity Snapshot

Below we provide our trading range charts of ten popular commodities.  The green shading represents between two standard deviations above and below the commodity's 50-day moving average.  As shown, oil has been trading at the top of its trading range for a few weeks now, and its uptrend remains intact.  Natural gas has also made a nice move over the past couple of months, but it has struggled to make the next leg up over the past few weeks. 

As investors know, gold is currently the commodity of the day, and as shown in its chart, it is currently trading right at overbought territory.  Silver and platinum have rallied along with gold, but they don't quite have the relationship with the dollar that gold has, so investors haven't plowed into them as much.  Corn, wheat, orange juice, and coffee have also all done well recently.

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S&P 500 Priced in Gold

With equities correcting over the last few weeks and gold rallying to record highs, the price of gold has once again exceeded the price of the S&P 500.  It now takes 0.96 ounces of gold to buy the S&P 500.  This is considerably less than the long-term average of 1.74 since 1980, and a far cry from July 1999 when it took over 5.5 ounces of gold to buy the S&P 500.  The question now is, if gold eclipses 1,100, will its time above that level be as brief as it recently was for the S&P 500?

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Crude Oil Inventories Show a Sharp Decline

Oil is getting a boost this morning following the weekly EIA inventory report which showed that crude oil stockpiles decreased by 3,963K barrels (expectations called for a build of 1,500K).  At a time of year when stockpiles are typically rising, today's inventory decline came as a big surprise.

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Gold Soars to New Highs

The price of gold has broken out to another new high this morning following news that India's Central Bank purchased 200 tons of the metal from the IMF.  Previously, the IMF had announced that it would sell around 400 tons, raising speculation that the planned sale would cause a glut of gold in the market.  Based on India's $6.7 billion 200-ton purchase, the market may have an easier time digesting the increased supply than previously thought.  The average price per ounce for the Indian Central Bank's purchase works out to around $1,045.  With gold now trading at $1,079, they have already made $218 million (3.25%).  Not bad for a few days work!

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Crude Oil Inventories Rise Less Than Expected

This week's report on Energy Inventories from the EIA showed a smaller than expected build in crude oil stocks (778K vs. 1910K forecast).  Gasoline and distillate stocks, however, posted larger than expected builds.  In addition, even though the build in crude oil stocks was less than expected, current levels are well above their historical averages.  While oil prices were down heading into the report, prices have dipped further following the release.

 

Gold Analysts Are Far From Gold Bugs

Below we highlight a price chart of gold since the start of 2008 along with the median price estimates of gold analysts across Wall Street going out to 2013.  The price estimates shown are quarterly through the first quarter of 2011, and then yearly from the end of 2011 through the end of 2013.  Based on these estimates, gold analysts don't seem too worried about a falling dollar and rising inflation. 

Their current estimates for the end of 2009 are at $960, and they get up to $1,000 by Q3 2010 before progressively dropping all the way down to $800 by the end of 2013.  This isn't to say that there aren't analysts expecting gold to be higher than it is now in the coming years, but the collective estimate is currently for the metal to head lower.

 

Bespoke's Commodity Snapshot

Below we provide charts of ten major commodities.  In each chart, the light green shading represents two standard deviations above and below the sector's 50-day moving average.  As we all know, gold is all the rage right now and oil has taken a back seat.  As shown in the chart of oil below, it has basically gone nowhere over the last two months.  It is currently trading right in the middle of its trading range. 

Natural gas, on the other hand, has made a significant move higher and broken its long-term downtrend.  With gold charging higher, silver and platinum have also moved up, but they haven't broken to new rally highs yet.  This is a key signal that the gold move is pretty much based solely on the dollar's move lower. 

Looking at the rest of the bunch, copper has actually been trending downward, corn has bounced nicely recently, wheat is close to oversold levels, and coffee and orange juice are in neutral territory.

 
 
 

Price of Gold in Dollars (Record High), Euros (-10%), and Yen (-10%)

The price of gold closed at record highs today exceeding $1,040 per ounce throughout the day.  While gold is at record highs in dollar terms, the commodity is still down 10% from its highs when priced in Euros and Yen.  As shown in the charts, the price of gold is up considerably over the last five years, but the recent run has only been strong in dollar terms.  This indicates that the strength is solely a function of a weaker dollar rather than any real pickup demand.

 
 
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Crude Oil Inventories Continue to Rise

This morning's release of the weekly energy inventory report from the Department of Energy showed that crude oil inventories increased by nearly 2.8 million barrels, which was 1.8 mln barrels more than expected.  With inventories up by 2.8 million barrels for the second month in a row, they remain well above their historical average.

Oil to Natural Gas and Platinum to Gold Ratios

With oil's decline and natural gas' rise over the past few weeks, the ratio of oil to natural gas has declined quite a bit.  As shown below, the oil/natural gas ratio hit a 20-year high recently as natural gas collapsed.  The ratio is still very high compared to historical levels, but it is down from 27 to 17 since the start of the month.

The platinum to gold ratio has also begun to reverse the downtrend it had been in since early 2008.  At the end of 2008, gold actually traded above the price of platinum, bringing the ratio below 1 for the first time in years.  With the economy getting back on track, platinum has outperformed gold, and the ratio is back up to 1.28.  This is still, however, far below the range that the ratio was trading in throughout most of this decade.

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Bespoke's Commodity Snapshot

Below we provide our trading range charts of ten major commodities.  The green shading represents two standard deviations above and below the commodity's 50-day moving average, and moves above or below this range are considered overbought or oversold. 

As oil has moved to the bottom of its trading range in recent weeks, natural gas has finally moved to the top of its range.  Natural gas also just broke above its one-year downtrend line, and now traders will focus on resistance that was made at its highs earlier this year.

Metals have settled down over the past few days as the dollar has ralllied.  After trading above $1,000 for a short time, gold has moved back down to $992.  Corn and wheat remain in downtrends, while the breakfast drink commodities (orange juice and coffee) have charts that look like a heart-rate monitor with multiple spikes and falls over the past few months.

DOE US Crude Oil Inventories

In this morning's weekly energy inventory report from the Department of Energy, crude oil stockpiles are expected to show a decrease of 1,400 barrels of oil.  In the chart below, we compare the current inventory levels with the overall average since 1984.  Even though oil is up more than 60% this year, inventory levels remain well above their long-term average.  Just to get back to average, we would need to see a decline of nearly 15 million barrels.

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Gold Grabs Headlines As Silver and Platinum Shine

Gold's move above $1,000 earlier this month grabbed headlines, but its precious metal counterparts have been the real performers this year.  As shown in the chart below, gold is up 14.2% year to date, while platinum is up 42.5% and silver is up 51.3%.  For ETFs of these metals, see GLD for Gold, SLV for Silver, and PTM for platinum.

Gold Reverse Head and Shoulders

While Barrick Gold's (ABX) decision to eliminate all of its hedges on the price of gold may end up marking a short-term top in the price of the commodity, technicians would argue that the company's decision was a good one.  As shown below, the price of gold is in the late stages of a reverse head and shoulders pattern.  If this is the case, and the commodity can finally decisively break its neckline level of $1,000, this pattern would imply a price target of $1,300 for the metal.

 

Did Barrick Just Jinx Gold Again?

Long-term readers of Think B.I.G. might remember this post we did back in March 2008:

As shown in the chart below, Barrick's CEO top-ticked the gold market at $1,000/ounce with his "there's lots of room to go in the gold price" in early March 2008.  Unfortunately for gold bulls, Barrick made another huge bullish bet on gold yesterday when the company announced that it was eliminating all of its hedges on the metal.  This came just as the price ticked above $1,000/ounce for the first time since February.  Will Barrick get it right this time, or is this an ominous sign for investors who are long gold?

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Gold Breaks $1,000

While the current price of gold ($1,005) is not at an all-time intraday high, if it holds onto these gains throughout the day, it will be at an all-time closing high.  Even with the potential for a record high close, gold's current run to $1,000 has been met with a lot less fanfare than the prior two runs.  They say a watched pot never boils, but once you take your eye off of it...

 

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Gold Gaps Higher Again. Is $1,000 Next?

For the second straight day, the price of gold is trading sharply higher and is now near its highs for the year. If it breaks through its March highs of $990, $1,000 gold heading into Labor Day weekend will be a distinct possibility.

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Gold Spikes Intraday, Are Equities Next?

The price of gold is building on its opening strength this morning and has spiked in the last few minutes.  With the correlation of gold and the S&P 500 at its most positive levels in over three years (chart below), will equities follow suit?

 

 

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Oil Down, Stocks Up

Given the strong positive correlation between oil and equities, one would expect the S&P 500 to be considerably weaker today on the heels of oil's 3.5% decline.  As it stands now, however, the S&P 500 remains modestly higher.  So is today's action a sign that the positive linkage between the two assets is diminishing? 

We wouldn't be too quick to say the relationship is dead.  As shown, today is actually the eighth time this year where oil was down more than 3% and stocks were higher on the day.  So while it's not neccessarily a common occurrence, it isn't completely out of the blue either.

   

 

Oil Breaks Above Inflection Point -- Barely

Last Thursday we noted that oil was trading at a key inflection point where it would either fail at or break above resistance.  As shown below, oil has broken above this inflection point in the last two days, but it has hardly been a move worth getting excited over.  With oil and the stock market trading so closely together in recent months, the ability for oil to forcefully break out will most likely depend on which way stocks move in the next week or so. 

 

Below we provide our trading range charts of 8 other key commodities.  Moves above or below the green zone are considered overbought or oversold.  As shown, precious metals are all trading right in the middle of their trading ranges, and the ranges themselves are tightening up as the volatility contracts.

While oil has been hurting consumers' wallets in recent months, food commodities have been dropping in price.  Corn and wheat are both trending downward and have broken all levels of support.

 

 

 

 

Oil to National Gas Ratio Highest Ever

With oil rallying and natural gas continuing to plummet on a daily basis, the ratio of oil to natural gas is at its highest level since at least 1990 at 26.35.  When the line is increasing in the chart below, oil is outperforming natural gas, and as shown, it has been doing that now since the end of 2008.  The ratio is currently in uncharted territory, so who knows when we'll see some reversion to the mean.

 

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