Gold, Oil Hold Key Support Levels: Next Move Likely Higher Says Yamada

According to the author of this article, gold prices are precisely what a consolidation before a move higher looks like. Gold prices are holding key support levels suggesting that gold has corrected and consolidated and its next move will be higher.

By Jeff Macke
February 16, 2012
Yahoo! Finance

All things being equal, gold and crude oil prices should move in opposite directions. Gold is a safe harbor investment, largely a place to ride out geopolitical storms and looming catastrophes. In contrast oil is literally the fuel for the fire of economic growth not typically associated with expansion.

Of course, all things are never equal. As shown most clearly in the late-1970's, the right kind of global tensions, particularly those emanating from the Middle East can send crude and the yellow metal soaring in lockstep. The same is true of currency flops, "bubble-like" expansion theories as seen in 2007 and 2008, and old fashioned market confusion.

With just about everything in the above paragraph applying in some way to today's market, it's helpful to take a step or two back and look at what the charts are telling us. There's no one better to help me do so than Louise Yamada, founder of LYAdvisors.

Are Gold Prices Ready to Rally?

Here's where the real money has lurked for the past 4 or 5 years, if not longer. The price of gold is precisely what a consolidation before a move higher looks like. Despite repeated "efforts" at falling below very well-established uptrends in the latter half of last year, gold held perfectly.

In other words the price held exactly where technicians believed it should, suggesting the move in gold above $1,900 an ounce has corrected and consolidated, as opposed to crashing and burning.

Louise opines that gold's next move is apt to be higher, even if it takes longer to get there than the super bulls would prefer.

Brent Crude Oil: The Global Benchmark

West Texas Intermediate crude oil, the one most often referred to as simply "crude" in your major media outlets, is a worthless yardstick. The world measures brent crude as the benchmark. Our gas prices move with brent. In the attached clip it's the oil price that matters to which Louise and I refer.

After an impressive ramp in late 2010 and early 2011, brent crude has pulled back and idled between $100 and $120 a barrel. Volatile, but still within corrective range. More importantly to bulls and concerning to drivers, this consolidation has lasted long enough for the uptrend to catch up to the spot price. As long as Brent holds $104, and it's honestly hard to see why it wouldn't with Iranian tensions once again at the fore, it's hard to see the price breaking anytime soon.

Louise sees no technical evidence of distinct near-term direction, but based on the geopolitical landscape, the bias leans upward in the outer months.

Tell us what you think: Will oil and gold move higher in lock step?

Drop us a comment in the section below and let us know what's on your mind.

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