Inflection Point for Crude Oil

Crude oil futures prices in the US have dipped to below $60/barrel, in spite of sanctions on Russian oil and other stresses in the energy markets.  Proponents of "Drill, Baby, Drill" are celebrating this price drop, as are motorists enjoying low average gasoline prices.

But the party is about over, according to the leading indication given by gold prices.  This week's chart is one I have shown here before, and it involves shifting forward the plot of gold prices by 19.8 months to reveal how crude oil prices follow in gold's footsteps.  The magnitudes of movements do not always match up exactly, but the timing of them is good.  And it is the timing of trend changes which matters.

We have also seen how news events matter.  That is not a surprise to anyone.  Gold did not know 19.8 months in advance about the government shutting down the economy during Covid, which magnified oil's price drop.  But that price bottom did arrive right on time.

We are now at the moment in this comparison equal to when gold was breaking out above $2000 back in early 2024.  That followed a 3-year sideways consolidation in gold prices.  Oil' response has been more downward than sideways as it echoes gold's 3-year consolidation.  But now we are at the echo point of gold's big upturn.

This chart does not include the most recent history of what gold is doing.  That is intentional, because I want to focus on the period of gold's price behavior that is relevant at the moment for what crude oil prices should do.  You have probably heard that gold spiked up close to $4400 recently.  That will matter for oil prices 19.8 months from now. 

What matters now is this immediate inflection point, related to when gold was starting that breakout move.  Assuming that this leading indication relationship between gold and oil keeps on working as it has been for decades, we should expect a sizable up move in crude oil prices. 

When I have shown people this chart before, I often get asked how far crude oil prices will go.  That is an understandable question, but not a relevant one.  It is human nature to want to know how big a move is going to be, but chasing that answer does not help us.  What matters is getting the direction of the move right, and the timing of the turns.  You cannot control how far prices go, and indeed some future news event could easily effect the "how far" question.  What matters is catching the direction of the move correctly, and riding it for while it lasts.  And gold says that this coming uptrend in oil prices should last for a while.  So you might want to go fill up the Winnebago now.