Oil and gold are making big moves in opposite directions, a major warning sign that markets are headed for a severe downturn. Last week marked the first time since the global financial crisis that gold had rallied at least 5.2% and oil plunged by at least 8.7%, and prior to then, such a stark divergence between the two major benchmark commodities has only occurred on two other occasions—both during the bursting of the dotcom bubble. Amid growing global trade tensions, it’s hard not to see last week’s moves as anything but bearish.
“Only three other times in history precious metals surged while oil plunged! All of them happened during severe bear markets and recessions,” macro analyst Tavi Costa of Crescat Capital posted on Twitter, according to MarketWatch. “Buckle up, folks.”
2 WARNING SIGNALS FROM SHARP DIVERGENCE IN OIL AND GOLD PRICES
- 2019: Oil has fallen more than 8.7% as gold has soared more than 5.2% in same week;
- 3 previous instances were during bear markets and recessions;
- 2 most famous events were 2000-2001 tech crash and 2008 financial crisis.
Source: Crescat Capital, MarketWatch
What It Means for Investors
Along with the surging gold-to-oil ratio, Costa noted a number of other bearish signals, including plunging copper prices, and widening corporate credit spreads. He also pointed to Federal Reserve Chairman Jerome Powell’s recent comments in response to the escalating trade war as clearly bearish. Powell suggested the Fed would consider cutting interest rates to maintain economic growth.