Home etftrends.com Pay Attention to Extreme Oil-Gold Ratios, Says Morgan Stanley

Pay Attention to Extreme Oil-Gold Ratios, Says Morgan Stanley

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Other than being highly traded commodities, one might not think there’s a correlation between oil and gold, but analysts at Morgan Stanley beg to differ. The oil-gold ratio can portend to future movements on oil prices, especially if it errs on the side of the extreme.

“The oil-gold ratio has historically been a poor indicator of future oil prices,” Morgan Stanley’s Martijn Rats and Amy Sergeant said in a research note published Monday, per a CNBC report. “However, it is interesting at its extremes.”

For example, a correlation exists during economic times where high inflation is rampant. In short, when oil and gold are both soaring, it might be time to keep the trading capital pouring.

“Crude futures tend to be supported during periods of high inflation, while gold is traditionally used as a hedge against inflation,” the report added. “This positive correlation has often meant higher oil prices have coincided with higher gold prices, although one does not directly impact the other.”

Short-term traders betting on even more price increases can look to ETFs like Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (NYSEArca: GUSH). GUSH seeks daily investment results, of 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.

GUSH invests at least 80% of its net assets invests in financial instruments and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index is designed to measure the performance of a sub-industry or group of sub-industries determined based on the Global Industry Classification Standards.

Bullish gold ETF investors can look to traders as a non-pure play on gold:

  • Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG): seeks daily investment results, before fees and expenses, of 200% of the daily performance of the MVIS Global Junior Gold Miners Index. The index includes companies from markets that are freely investable to foreign investors, including “emerging markets,” as that term is defined by the index provider.
  • Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT) : seeks daily investment results, before fees and expenses, of 200% of the daily performance of the NYSE Arca Gold Miners Index. The index is comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in the mining for gold and, in mining for silver.

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