Gold and Oil

By Colin Twiggs
May 18th, 2011 7:00 a.m. ET (9:00 p:m AET)

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The Gold Miners ETF (GDX) is headed for a test of primary support at 53.00. Failure would complete a double-top reversal. Breach of the long-term trendline indicates that the primary up-trend is weakening and bearish divergence on 13-week Twiggs Money Flow warns of reversal to a down-trend.

WTI crude is undergoing a correction. Failure of support at $96/barrel would test the long-term trendline.

Gold

Gold is testing support at $1460. Failure would signal a correction to the long-term trendline, while recovery above $1520 would signal another test of $1550. Declining Twiggs Momentum favors a correction.

* Target calculation: 1430 + ( 1430 - 1310 ) = 1550

Gold and crude may both undergo a correction, but there is no indication yet of reversal of the primary trend. A double-top on GDX would suggest caution, but it would be premature to act before there is supporting evidence.

Gold-Oil Ratio

The gold-oil ratio has fluctuated in a relatively narrow range between 13 and 18 since mid-2009, well within the usual 10 to 20. The massive spike at the end of 2008 was caused by a sharp plunge in crude prices rather than rising gold. Breakout from the 13 to 18 range appears unlikely at present, but would warn of a trend change.

Nature does not hurry, yet everything is accomplished.

~ Lao Tzu: Tao Te Ching