eResearch | Gold has proven to be a successful leading indicator for the future price of crude oil. Tom McClellan states that changes in the price of gold tend to be mirrored in changes in the price of crude oil some 20 months later.
Despite the big drop in the price of crude oil in 2020, brought on by the increasing fear that the coronavirus will impact, not just China, but global economies, the timing of oil’s price-drop “still matches gold’s message”.
Of course, indicators do not always work in perfect unison. In this case, oil became somewhat dysfunctional in Q4/2018 but it got back in sync with gold in early 2019 and it has stayed that way ever since.
With gold bottoming in August 2018, 20 months hence means that oil should bottom in April 2020. However, with the coronavirus scare decimating the Energy Sector, the bottom for crude oil may already have occurred. But, using that 20-month benchmark, we will need to wait until April to confirm that this gold-oil relationship has performed as expected.
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