Is the gold to oil ratio a sign of trouble?

January 8, 2015

This week the price of gold peeked back above $1200 per ounce, while the price of light crude oil ducked below $50 per barrel, its worst price in five years. The result, as this Reuters graphic shows, is that an ounce of gold is selling for the equivalent of 24 barrels of oil–the first time this ratio has hit such heights since 1998, when Russia defaulted on its debt, roiling the oil market while making gold a safe play.

During the latter part of the Clinton years, the price for a barrel of West Texas Intermediate oil was barely in the double digits and gold checked in at a touch under $300 per ounce, both of which seem like misprints by current standards. But it’s the ratio that tells a story. Historically, gold has cost about 15 barrels of oil per ounce, and while an increase in this number can sometimes be seen as a sign of deflation, this time analysts believe that oil’s free fall is due to oversupply and obstinate attitudes.

Gold, meanwhile, remains a popular bet for investors skittish about the euro zone’s stability and general global instability. “Investors remain more interested in gold because of issues other than the oil price, specifically, financial market stability, economic stability, international tensions between the United States and pretty much the rest of the world,” Jeffrey Christian, managing partner of the CPM Group commodities research firm,  told Reuters on Wednesday. So while the gold to oil ratio can be a warning, it seems this version isn’t necessarily bad news.

GoldOilRatio010815

One comment

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It’s pretty obvious that whomever is responsible for welcoming “…comments that advance the story through relevant opinion…” as to THIS story are missing in action. The story posted on the 8th, I posted a relevant and appropriate comment soon after, and, almost a week later, there are still “No comments so far”??? Somebody’s lying through their teeth.

Posted by OneOfTheSheep | Report as abusive