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Chart In Focus

Gold Shows an Oil Price Bottom Ahead

Chart In Focus
May 09, 2024

Gold is valuable, not just as a tradable commodity, but because it knows things about the future which are useful.  One of the things that gold knows is what crude oil prices are going to do.

The chart this week shows gold prices shifted forward by 19.8 months, and compared to crude oil prices.  This time shift is done to better portray how gold's price movements get echoed after that length of time in the movements of oil prices.

This is assuredly not a perfect model, just a really good one.  Occasionally it gets out of whack, most recently when Russia invaded Ukraine and disrupted the oil market in the process.  But after every episode of the correlation getting weird, prices work extra hard to get back on track again. 

Coming up, this model says that we have a bottom due in mid-2024, followed by a rise toward the end of the year.  That oil price rise is not going to be good news for any federal politicians who may be running for reelection in November.  And if the recent rally in gold prices (just off the right end of this chart) keeps going higher, that is going to mean higher oil prices 19.8 months later.

gold leads crude oil prices

The chart below zooms in on this same comparison, and shows us that when we get up close, the correlation is not as tight.
In late 2023, crude oil prices turned down early and missed a top which gold had said should have come later in 2023.  Since then, though, oil prices have gotten back on track again.

This chart says that the upcoming bottom is ideally due in June to July 2024.  I would not recommend taking that literally, since actual arrivals of the turning points can be a little bit early or late, and still be considered "normal".  The message one should take from this relationship is that a bottom is ahead, and still with more price damage before that bottom arrives.  Then as summer gets closer, we should turn to other indicators to home in on signs that the price bottom for oil is arriving, and/or that an upturn is starting. 

Tom McClellan
Editor, The McClellan Market Report

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