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Followup: Crude Oil Priced In Gold at Trader’s Narrative

Followup: Crude Oil Priced In Gold

At the start of the summer, when oil was setting records and trading at ~$135/barrel I showed an interesting graph which showed the price of oil in gold.

I wanted to show that even priced in this currency - which many feel is superior to the beleaguered US dollar - crude oil was just too expensive and ready to come down to more realistic levels.

Since then the price of crude oil has fallen to ~$96 and many see it continuing the slide lower.

Elizabeth asked for a followup now that a few months have passed so here is a more recent chart:
crude oil priced in gold updated long term chart

Still Expensive?
To get an idea whether oil is still expensive, priced in gold, it depends how far you want to go back. If you look back just a few years, it has a bit more to fall. But if you go back to 1994 or 1999, then oil could potentially fall much, much more.

While attempts at a new financial bailout is plodding through the halls in Washington, the consequence of any sort of bailout is that the price of oil will remain high. This article from Forbes explains why.

My personal conviction is that there should either be absolutely no bailout - allowing rotted financial institutions to declare bankruptcy. Or if the government gets involved, it should be state capitalism, not socialism. Which means that the US should follow the Swedish model and ask for equity. If they want to hammer out a deal quickly, they can use similar terms that Buffett got from Goldman Sachs (GS).

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2 Responses to “Followup: Crude Oil Priced In Gold”  

  1. 1 Elizabeth

    Thanks very much for this. Congratulations on your PERFECT original call of a top (at the beginning of summer)! Okay, here we are at a low of 87 1/2 today (10/6/08). The price of crude in gold has now decreased over 30 % from its highs–it’s now around .10, so 10 barrels of oil are worth one oz. of gold.

    Since its low in 1998 of $10, oil has traded as a parabola-shaped bull market (in dollars). IF we are still in a long-term bull market, there should be a few low-risk buy points that can be put on with close stops. But where?

    Since the last two major price retreats were perfect 62% Fibbonacci retracements (the move from $17 to $40 pulled back to $25; the move from $25 to almost $80 pulled back to $50), its probably useful to note where the Fib. retracement of the last major up-move would fall now:

    The 62% retracement of the move from $50 to $148 is right here at around $87. Might be worth taking a position with a close stop. (The 62% retracement of the entire move from $10 to $148 is $63.)

    Price-wise, gold has been leading oil. Four weeks ago gold was at $740, now $856. Perhaps that’s another reason to take a stab at going long oil now? Don’t want to hold it much below $85 though.

  2. 2 Babak

    Elizabeth, thanks - no one was more surprised than myself ;-)

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