Gold's bull market endures, just watch this ratio - Bloomberg Intelligence
(Kitco News) The bottom in the gold price will be marked by the crude oil prices peaking, which is the most likely outcome, according to Bloomberg Intelligence.
"Probabilities are rising that the bounce in crude oil is done, with what we see as implications for a return to more-enduring upward trajectories in gold and bond prices," said Bloomberg Intelligence senior commodity strategist Mike McGlone.
A peak in crude at $70 marks the bottom in gold, McGlone specified.
After falling below $1,680 an ounce at the end of March, gold could have found its low, with prices now showing strength above $1,700 an ounce. At the time of writing, June Comex gold futures were trading at $1,756 an ounce, up 0.83% on the day.
"Brent crude adding distance below the 2021 high close of $69.63 a barrel is the more likely outcome, as we see it, with bearish implications for most commodities save gold," said McGlone. "Global crude was oversupplied amid slack demand before the pandemic, and having bounced toward the upper end of the range, risks appear tilted toward more of the same.
Higher oil prices have been accompanying the rising U.S. Treasury 10-year yields, which have been weighing on gold. The peak in oil could mark the end of the dramatic selloff in bonds as well, which is good for gold.
"Pressuring the price of gold in 2021 has been the rapid rise of Bitcoin and U.S. Treasury 10- year yields. Bouncing oil prices have been a companion of rising bond yields this year, but the more enduring path for fossil fuel prices is lower, with implications for Treasuries," McGlone described. "If crude simply sustains its downward trajectory since the 2008 peak, which is increasingly likely due to the fundamental backdrop, the 2021 backup in gold and bond prices is more likely to prove temporary within more-enduring bull markets."
Bloomberg Intelligence sees gold once again outperforming crude prices this year. "Fundamental underpinnings for the crude bear market (since the financial crisis) and gold bull (since the start of the new millennium) appear to be solidifying," McGlone wrote on Thursday.
Both crude oil and gold have felt the pressure from new technologies. Oil has faced threats from new green technologies replacing fossil fuels and gold dealt with bitcoin stealing its shine as the hedge against inflation.
But for crude, the trend is more irreversible, which is why gold is still in a bull market, McGlone pointed out.
"Technology replacing fossil fuels may be the more enduring deflationary force, rather than gold-price pressure as investors replace the metal with Bitcoin in their portfolios. Our graphic depicts the ratio of gold vs. Brent futures revisiting the 60-month moving average, which has been rising since the financial crisis," McGlone said. "With elevated energy and depressed metals prices at the end of March, probabilities again lean toward the longer-term trends of advancing gold vs. declining crude."