Gold vs oil redux

COMMODITY WATCH

To time the entry points into the next bull trend for oil and gold we need more than a few weeks of patience. This was the reason we starting tracking the intermarket relationship between the two big assets that are key for global economies and gives many cues on where we are headed in the year ahead.

We talked about gold vs oil relationship on July 2, when we mentioned that the precious metal should outperform oil going forward. In 45 trading days the intermarket strategy has returned 5 per cent. Strange but though gold remained flat over the period under study, oil turned down from historical highs yet again and fell nearly $10 in 21 days.

Now that the intermediate momentum has turned from extremes, a further dip on oil cannot be ruled out. Sub $72 we are looking to $68 for Brent.

Even MCX crude oil seems to have turned from the key Fibonacci resistances at Rs 3,100. Key supports lie at Rs 2,800. A break at Rs 2,800 should push MCX oil into an intermediate trend lower, 30 per cent down from current levels. This might look like an extended target.

But like we said earlier, the move on oil happened while gold was flat. If gold starts easing too, oil's underperformance to the precious metal might just pick up some pace. Gold has failed to move above key resistances at $690.

The metal is moving sideways between $640-$690 since March and below $690 levels for more than a year now. The preferred count still looks at this as multi-month stagnation. At this stage we expect a retest of $640 yet again.

The MCX Energy Index has also not moved above our anticipated key resistances near 2,400 levels. And MCX gold is still above anticipated key levels at Rs 8,600. We continue to maintain that below Rs 8,600, MCX gold should hit Rs 8,200. Oil in any case might fall more compared to gold. However, the gold outperformance should continue.