Oil’s Upturn Was On Time, Overdone By Iran War

When oil prices turned upward from their January 2026 low, that upturn was roughly on schedule.  But the magnitude of the up move we have seen was overdone because of the shutdown of shipping out of the Persian Gulf.  Oil prices are normalizing now, but the uptrend should resume.

I say all of this because of the longstanding leading indication relationship gold prices have with oil prices.  In this week's chart, the plot of gold prices is shifted forward by just under 20 months to reveal how oil prices tend to echo gold's movements after that lag time.

It does not work perfectly, of course.  Any crystal ball looking 20 months into the future is not going to be able to account for the effects of unknown news events.  And there is sometimes some slight imprecision in the alignments of the tops and bottoms in each pattern.  That is a normal aspect of this relationship.

We saw some variation in 2020, thanks to the Covid shutdowns.  Oil prices bottomed on gold's schedule, but the magnitude was understandably affected by everyone staying at home and not driving.  There was a similar disruption of magnitude in early 2022 when Russia invaded Ukraine, and the rest of the world put sanctions on the sales of Russian oil.  That resulted in a big spike in oil prices, again roughly on time according to gold's message, and oil prices normalized afterward.

This most recent spike in oil prices to above $100/barrel was overdone thanks to the news events.  But it marks the start of what should be a longer term uptrend lasting until we get to about 20 months after gold's January to March 2026 topping structure.  That point is off the right end of the chart above, because I set the data ranges as they are so that we could better see the movements just ahead.

Readers should understand that even though gold prices more than doubled, after breaking out in 2024, that does not necessarily mean that oil prices will also double.  This leading indication relationship works better when we read its message about the direction of movement and the timing of turns, more than any message about magnitudes of movements.

It is worth noting that this same leading indication relationship from gold's message also works for long term bond yields with a slightly different lag time of about 20-1/2 months.  That relationship is covered in almost every issue of our twice monthly McClellan Market Report newsletter.