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Historic Ratios – Which Direction Will Asset Prices Move in 2019?

Peter Hemple makes some early predictions for asset prices like property, gold and oil

After two very successful years of making the correct call on asset prices that had the most out of kilter ratio, compared to the 20-year average, (short gold/long oil in 2016, and short London property/long oil in 2017), my tip for 2018 was incorrect. However, it was not a catastrophe and it was only unprofitable if the trade was continued for the entire calendar year and no profits were taken off of the table.

In early December 2017, with the price of Brent Crude oil costing $63.62/barrel, and the cost of a typical London property costing £471,800, I predicted that oil would rise and London property would fall in 2018. Well the cost of a home in London did fall, ending 2018 at £467,000 (Nationwide figures), a fall of just over 1%. As for the price of Brent Crude, it did continue to rise steadily throughout 2018, as the historic ratio suggested it would, and the price peaked in October 2018 at $86.65/barrel, a rise of 36.2% in the 11 months following the historic ratios article.

Hopefully, if anyone had decided to place a trade, going long on the price of oil for 2018, they were wise enough to take some of those juicy profits before the price of oil completely crashed during Q4, falling from almost $87/barrel to end the year at just over $54/barrel, a collapse of 37.5%.  

The FTSE 100 also fell heavily in Q4 2018 and ended the year down by 12.1%, while US stock markets fell even harder in Q4. In fact, even the price of gold (traditionally a safe haven when everything else is crashing) fell in 2018, down $20/ounces to $1,283, a fall of 1.5%. In fact, the only asset, from the five that we cover in these articles, that increased during 2018 was UK property, which increased by around 2% to £214,200.

Also, while the cost of oil fell by almost 15% between our last ratios article and the end of 2018, it has rebounded quickly so far this year and in the first three trading days of January, Brent Crude jumped by 6.1%. But will it continue rising this year? It is time to look at each asset price in more detail and see what the historic ratios tell us should happen in 2019 (for a quick reference see the table below – all prices to 31 December 2018), and first up has to be oil.

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