The Oil-Gold Ratio

By analyzing the Oil-Gold Ratio one can find out about the dependency of both assets on each other.
The first question to arise out of this comparison is whether gold is rather undervalued or overvalued
relative to oil.

During all of the three commodity hausses of the last century the oil price was anticipating price changes. This development could be seen in all commodities, however, particularly in precious metals.
Taking the entire 20th century into consideration one can calculate an average oil-gold-quotient of 15 to 1, which means that you had to buy 15 barrels of oil (one barrel contains 159 litres) in order to buy one ounce of gold.

Nevertheless there have been deviations from this average ratio as well.

Between 1972 and 2000 the average ratio was slightly below 17. If we would only consider the time span from 1980 to 2000 we arrive at an average value of 17.6.
There have been time spans which showed an essentially lower ratio, e.g. in 2000, when the Oil-Gold-Ratio was around a value of 10. One important aspect which was identified in this period of time was that the ratio adjusted itself in the sequel back to a value of at least 15.

To come to a conclusion one can say that there have been 3 possibilities how this average ratio was reached over and over again.
Either the oil price decreased, or the gold price increased, and from time to time both price movements happened at the same time (third possibility).

Currently the Oil-Gold Ratio is at a value of 14, calculating with prices of oil being at around 100 USD/barrel and gold being worth 1400 USD per ounce. In historical terms this is a very low level! In the long term a ratio of at least 15 may be expected. However, there were times with much higher ratios as well.
During the final stage of the 1970's commodity hausse the ratio temporarily reached a value of 21.1.
Meanwhile the oil price couldn't pass the 40 USD mark, gold climbed up to prices of 850 USD per ounce.

Also read about: Oil-Silver Ratio , Dow-Silver Ratio , Gold-Silver Ratio , Dow-Gold Ratio