Gold & oil: Which has a better upside potential?

Once we know the current medium-term outlook for crude oil, let’s take a closer look at the chart below and check the link between crude oil and gold. Will gold lead oil higher?

Click to enlarge.

That’s still not likely. Looking at the above chart, we see that the connection between light crude and gold has changed in the recent days. Although, we saw a clear negative divergence earlier this month, both commodities moved pretty much in the same direction in the previous week.

They declined together in the first half of last week and then rebounded on Wednesday after the Fed‘s statement. This improvement didn’t last long anyway, and in both cases we saw a downward move in the following days. At this point it’s worth mentioning that the recent decline took crude oil to a new weekly low, but we didn’t see such price action in gold, which means that the yellow metal was stronger in relation to light crude.

Summing up, although crude oil erased all of September’s gains and reached a new monthly low, we should  keep in mind that the recent decline in light crude is just slightly bigger than the previous ones in the entire April-August rally and the uptrend is not threatened at the moment. At the same time, the downtrend in gold remains in place. Consequently, at this time – and taking the short term into account – it seems that crude oil has greater upside potential than gold does.

About the Author

Nadia is a private investor and trader, dealing in stocks, currencies, and commodities. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit on them.

You can read Nadia's analyses at where she publishes her articles on gold and crude oil trading.

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