Will crude and gold decouple? Is US-China Phase One a non-event? Will Fed repos create bubble? Jeff Greenblatt addresses these questions and more!

If crude oil breaks down will gold continue to breakdown? Not necessarily.

Looking at the near-term picture (see charts below), crude oil bottomed on Oct. 3 while gold bottomed a month later.

After that they’ve moved in tandem. I’m not looking long term because they can move in opposite directions for a while. Recent history shows gold bottomed in August 2018 while oil didn’t hit rock bottom until December 2018. There’s a reasonable chance they could decouple for a while again.

2018

184 days

Why do I say this? Because both had decent recent readings for a high. Crude lined up 184 days from its April 2019 high at a range up of 14.85. Gold also had an interesting reading at its high and these came in with the de-escalation of the conflict with Iran.

Here’s the difference: Gold looks like it has a better chance to find a low compared to crude right now, which is threatening to breakdown from its connect-the-dots magnet line and the 200-day moving average. Its in a place where it could try to bounce but the reading is weak. This is just speculation concerning market psychology. There is a train of thought that considers the drop in crude oil to this point as a reaction to the Iranian stand down. If you’ve been following it closely, there is a secular movement in the country called Restart which is in opposition to the Islamic regime and is gaining steam since the Ukrainian commercial plane was shot down. They are making noise to get the 2009 movement going again. Who knows how much influence they really have?

Geopolitics

The U.S. State Department doesn’t like the Islamic regime, that’s obvious. The challenge is the opposition group is really nothing more than a radical socialist group. If they were to succeed, it will never go back to anything like the Iran is the old Shah days. In case you noticed, we haven’t heard too much noise coming out of China since this whole Iranian crisis started. Chinse President Xi protested but that was it. The bottom line is China recently participated in naval war exercises with Iran and they do buy a lot of Iranian oil.

Putting that aside, should crude oil break down from here, there is a good chance sentiment would shift gears back to the economy and lower crude prices would be a sign of an economic slowdown. The jobs number was mildly disappointing last week. Additionally, the Federal Reserve said they would continue injecting money into the system through April. All of this could play into the hands of the gold pattern, which could gain momentum as a safe haven.

The news of the day was the signing of the Phase One trade deal with China. Earlier in the week CNBC reported floor traders felt the deal was less than the market hoped for. Could it be long on promises but short on enforcement? For instance, according to CNBC the deal makes commitments to try to root out the sale of counterfeit goods. All of us knows the type of commitment ‘trying’ means.

It also calls for China to submit an “Action Plan to strengthen intellectual property protection,” within 30 days of the agreement taking effect. According to the details we have, there is a deal but no action plan or anything legally binding as to how intellectual property rights will be protected, which is one of the most important aspects from the American view of things. The entire deal appears to be nothing more than another attempt to prop up the markets as close to the election as possible given the precarious position the financial system is with Fed injections.

As far as stocks are concerned, the market has hit another time window. This time it’s Fibonacci 987 days from the February 2016 bottom. In a normal environment, stocks would be rolling over here and they still might. That being said, the system continues to be flooded and it may take either the Fed to stop which would halt the growth of the money supply or another geopolitical event. Another possibility is if the Senate really does remove President Trump from office. While it looks like President Trump is safe with the GOP Senate, do not take anything for granted in the current environment.

We seem to be at a crossroads with oil and gold. We are also in a position with the latest Fed actions where the bubble could get inflated even more than it has.

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