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Why you should stay long crude oil
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Thursday, March 26, 2009
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By Brian Hunt in DailyWealth:

This winter, we ran an unusual chart that predicted - almost to the day - the new rally in crude oil. The chart displayed the "gold/oil" ratio.

The gold/oil ratio is the amount of crude oil one ounce of gold will buy. If gold is $800 an ounce and oil is $80 per barrel, the ratio is 10. If gold is $800 and oil is $40, the ratio is 20. When the ratio dips below 10, gold is cheap relative to crude oil, and it's a safe bet gold will outperform oil over the following year. When the ratio climbs above 20, the opposite is true... crude oil is cheap.

Last winter, thousands of investors fled economically sensitive assets like crude oil and piled into crisis assets like gold. The ratio shot up from a sleepy 8-10 reading to a "boiling" reading of 24 around Christmastime...

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Topics: Energy | Commodities
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