A lot has happened since I posted this XME/XLE chart three weeks ago. Gold is slightly stronger than oil, with the XME/XLE ratio at 0.59, and the RSI is now testing the trendline resistance.
As a reminder, the SPDR® S&P Metals and Mining ETF (NYSE:XME) is a major ETF for metals & mining stocks, while the Energy Select Sector SPDR® Fund (NYSE:XLE) is the biggest ETF for energy firms.
Why am I mentioning this now? Metals (specifically gold) could get a further boost by the necessity for nations (especially oil importers) to preserve the value of their monetary reserves against oil.
Regardless of whether these nations are from the industrialized or less developed world, they must preserve their purchasing power of oil.
See what Ghana agreed with the UAE about paying for their oil with gold in my tweet earlier this week. OPEC will closely watch the outcome of next week's EU discussions on the G7 price cap on Russian oil exports.
Any prolonged decline in oil prices will see OPEC rushing to cut supplies, affirming the importance of stocking up on those few monetary/non-monetary reserves that maintain their value relative to oil. And that would be no other than gold. Watch the RSI on XME/XLE.
