St. LOUIS () -- The gold to oil ratio hit 11.25 barrels per gold ounce today in morning trading after crude dropped below 55/bbl and gold fell below 620/oz. But with gold up 23% and oil down 3.6% for 2006, the ratio appears to be moving closer to the 36-year average of 17.5 bbl/oz.
According to coverage by RI, the ratio has been on the rise since the summer. From 8.5:1 , the ratio hit 10:1 , 10.75:1 in and a high of 11.30:1 in . The 2006 average was 9.22 bbl/oz; however, the average after July was closer to 9.8 bbl/oz.
Dennis Gartman of The Gartman Letter said in a daily report today he expects the ratio to move upward toward 15:1 and ultimately toward 20:1. Of course, he did not specify when.
"Patience, patience and more patience shall be required, and our preferred method of doing the trade shall be to own the gold ETF (GLD) whilst being short of the crude ETF (USO)," he said.
After a further drop in gold and a slight recovery in oil, the ratio closed out the day at 10.8 bbl/oz.
However, analysts see further volatility in the coming days.
Gold Price Activity
After a running up almost $20 in the last, albeit, shortened week of trading in 2006, gold has hit heavy resistance in the first week of 2007. The yellow metal lost more than $30 this week with nearly $20 given back today alone, finishing at $606.90 on Nymex after touching a low of $603.
"Having broken through the 100-day MA and the combination of falling oil strengthening dollar sentiment there is potential for gold to extend lower," said James Moore, analyst for TheBullionDesk.com.
"However, dips are still finding support as investors and speculators appear keen to enter the market. Additional technical support is pegged around the 100-day MA ($612.20) and $608," he added.
News that employers stepped up hiring last month, boosting payrolls by a healthy 167,000 and keeping the unemployment rate steady at a still historically low 4.5%, sent the dollar to a six-week high against the euro.
The dollar gained as speculation faded the Fed will lower rates from before April, after keeping rates steady at 5.25% in past four meetings. The USD traded at 1.2992 per euro in New York, from $1.3084 late yesterday.
"Whether or not the majority of the jobs in question were seasonal mall Santas and whether or not subsequent adjustments are made to the closing month numbers for the 2006 economic picture, the reality in this morning's bullion market is a compass that points to $600-$610," Jon Nadler, analysts for Kitco.com.
Oil Price Activity
Although the crude price hit an intraday low of $55.10 today, dropping below $55 last night, the February crude contract recouped some losses to close up 72 cents at $56.31. However, warmer winter temperatures have plagued crude of late, contributing to nearly an 8% drop in prices this week.
The National Weather Service is forecasting warmer-than-average temperatures through January 14, with average temperatures in New York City 12 degrees above normal. Northeastern states such as New York and Massachusetts consume about 80% of the heating oil used in the U.S.
The U.S. government reported yesterday that inventories of gasoline, heating oil and diesel fuel rose more than analysts expected during the last week of 2006. Gasoline inventories swelled by 5.6 million barrels to 209.5 million barrels, while distillate inventories increased by 2 million barrels to 135.6 million barrels.
"The real problem was the sharp rise in gasoline inventories which were up a shocking 5.7 million barrels," said Gartman. "The consensus was for a far more modest increase, and we had thought that gasoline inventories would be up barely at all given the warm weather and the extended 'driving' season because of that warm weather."
Gartman said it would appear that imports were up - and faster than demand.
"Collectively, the sharp rise in gasoline inventories caused a collective 'gasp' on the NYMEX trading floor, and prices collapsed on that news," he added.
Last month, OPEC agreed to cut production by 1.2 million barrels, citing slower- than-expected increases in demand and the growth in stockpiles. Member states will cut output by another 500,000 barrels on February 1.
"OPEC obviously is more than modestly anxious about what has taken place in the past several days," said Gartman.
Dr. Shokri Ghanem, the Chairman of the Libyan National Oil Company, said earlier today that OPEC may have to call an emergency meeting for February or March to debate its recent decision to cut production, "with an obvious eye toward cutting production further," Gartman added.
Other Metal Activity
Other metals were broadly lower today on Nymex as well. March silver closing down 60.5 cents, or 4.7%, $12.23. It lost 5.5% for the short trading week.
January platinum lost $23.50 to end at $1,109 an ounce, losing 2.7% for the week, and its sister March palladium shed $10.45 to close at $335.10 an ounce, down 1% from last Friday.
March copper closed down 6.7 cents at $2.535 a pound.