Chart of the Week - The oil vs gold ratio is trending consistent with recession risk

$S&P 500(.SPX)$ $Gold - main 2306(GCmain)$ $WTI Crude Oil - main 2306(CLmain)$ $Micro WTI Crude Oil - main 2306(MCLmain)$ $E-mini Crude Oil - main 2306(QMmain)$

The crude oil vs gold ratio has peaked at a key level and turned down – threatening to break further lower...

Image

Aside from being interesting with respect to the relative attractiveness of gold miners vs energy stocks and relative trades within commodities, this chart is also interesting as a macro indicator…

If the global economy does rollover into recession, that’s going to be negative for energy demand and positive for gold safe-haven buying demand and associated gold macro tailwinds (lower yields, monetary easing).

And it’s always important to think through the economic logic like this with these sort of charts and indicators

Interestingly, while a lot of markets are arguably not really pricing in recession just yet (ahem, credit, ahem), this particular indicator has shown a marked turn down reflecting the faltering macro pulse — with risk of further downside as recession looms.

And at this point I’d remind folk, we don’t get upset or excited by the stage of the business cycle — someone asked me the other day if I’m optimistic and I said “yes I am always optimistic …but in terms of the cycle, all the evidence points to recession”

And at varying stages of the cycle there are different risks and opportunities across markets, so back onto the investing implications of this one: energy stocks and energy commodities are arguably at risk, while precious metals and miners see upside.

Key point:  The oil vs gold ratio is trending consistent with recession risk.