Gold/Oil Relationship Heats Up After 7 Year Break-Up

by David EngstromJanuary 14, 2015
Lear Capital

It’s been like clockwork.  Every 7 years the gold oil relationship heats up.  Since the turn of the century, oil has sent gold 3 strong buy signals.  The relationship between oil prices and gold prices has been rocky but predictable.  If this last reconciliation plays out again, like it has over the last 15 years, gold could be headed 38 to 55 percent higher in less than 12 months.  In these markets would a 38% return interest you?

Good – Here’s the deal.  Oil has just flat crashed.  In 6 months it’s been cut in half.  They say that’s a good thing but it’s already happened twice before in the last 15 years.  Now, it's happening again! I know it's hard to remember a crash in oil prices.  It seems we have had $4 gas forever.  Nonetheless, oil has now crashed for a third time.  And what did the markets do after the first two crashes?  I think you’ll be shocked!

The first time was 2001.  Did you know oil was only $30 a barrel back then?  And by 2002 it fell all the way to $18 a barrel.  Down 40%.  And what do you suppose stocks did?   

The Dow lost 35%.  In mid 2001, it peaked at 11,337 and by 2002 fell all the way to 7286.  I think it’s pretty obvious - back then falling oil didn’t help stocks it hurt them.

Then in 2008 – 7 years later - it happened again!

It started with oil at $94 and in just 9 months it was cut in half -- down to 47.  And then we all know what happened to stocks.  In 2008 the Dow started at 14K and by the end of the year lost 42%.  Then oil dropped another 8 dollars and by 2009 the Dow lost another 10%. 

And now it’s like clockwork. It’s 2015 - 7 more years have gone by - and it’s happening again.

In 6 months oil has dropped more than 50%, the overvalued Dow is starting to crack and if this 7 year cycle repeats stocks will lose 35 to 42%.

That’s the scary part but here’s the exciting part.

Every time - falling oil has been followed by falling stocks and rising gold.  In 2002 when oil bottomed gold was just $255 an ounce.  By the end of the year it rose 38%.

In 2008 gold started at $740 an ounce and by 2009 rose 55%.

That’s the signal we’re seeing today.  Falling oil!  Falling stocks and rising gold.

Since the turn of the century, no other indicator has been as good at signaling these huge falls in the markets as oil has been and we are now down over 50%.  So here we go again.  Oil Falls, stocks correct and gold rises.  Will this 7 year cycle 3-peat?  777 is supposed to be a lucky number.  I guess it just depends on which side of the precious metals fence you currently sit.

Signs of trouble ahead are everywhere.  Debt is rising to a point where all the money we collect will be paid out as interest.  Stocks are said to be at their peak and ready to crash.  Retail sales are plunging.  The workforce is shrinking.  Wages are dwindling.  The bond bubble is getting bigger.  Housing outlook looks bleak.

Then the oil price indicator sent out a monster signal to buy gold or silver, both usually rise in tandem.  How many more signs do you need to see before you own more gold?

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