Dan Norcini gave an interview on King World News on oil breaking out from $105 per barrel and to go much higher carrying gold with it and also discusses the oil/gold ratio.

If we can get a couple of closes above $105 we should see a substantial spike higher in the price of crude oil.  The next move should take crude $10 higher to the resistance area at $115.”

“It is worth pointing out that we are not even in the heavy usage time frame and it has been a relatively mild winter.  So we are now in between the heating oil consumption months of winter and summer driving demand, and yet here we are with crude oil breaking out and threatening a move to the $115 area.

Above $115, there really isn’t any technical resistance until the $140 level, near the all-time high.  If we see two consecutive closes above $115, you dramatically increase the odds that crude oil will be revisiting the all-time highs near $150….

 It’s almost inconceivable to me that we would see crude oil moving in one direction and gold moving the other way.  Today, both oil and gold moved higher together.  A sharply higher crude oil price is going to pull gold higher along with it.  This happens because traders anticipate the inflationary impact of higher crude.

If you go back to 1998 and look at the gold/oil ratio, we hit 27.5 to 1.  The ratio today is at 16.5 to 1.  Let’s say the ratio of 16.5 stays consistent, but crude moves to the old high of $150, that would mean a gold price of $2,475.”

It is important to note the gold/oil ratio hit 30 to 1 in the mid and late 80s.  The ratio was also close to the 35 to 1 level in 1974. 

I expect the gold/oil ratio to eventually hit the 25 to 30 level.  But, if the gold/oil ratio simply goes back to the 1998 level of 27.5 to 1 and crude oil makes it way back to the previous high of $150, that would translate into a gold price of $4,125.  The important thing here is gold should dramatically outperform oil in coming years.  We went to historic extremes in favor of oil and we will go to historic extremes in favor of gold in the future.

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