Spot Gold recently recovered above $1100, suggesting a short rally fueled by concern over China. The gold-oil ratio, however, soared to 33, signaling that gold is highly overbought relative to Brent Crude. Last time the gold-oil ratio reached 30 was 1988 — when the Iraq-Iran ceasefire eased global crude shortages — and before that when the Saudis substantially hiked crude oil production in 1985. Any gold rally is likely to be short-lived — with stubborn resistance at $1200/ounce — and followed by a test of support at $1000/ounce*.
* Target calculation: 1100 – ( 1200 – 1100 ) = 1000
The last time (2008) that Brent Crude reached these lows, gold fell to $700/ounce.