On This Key Measure, Gold Looks Crazy Expensive

On This Key Measure, Gold Looks Crazy Expensive
Stéphane Renevier, CFA

about 3 years ago1 min

  • The gold/oil ratio shows the price of gold divided by the price of oil. A high ratio means gold is expensive relative to oil while a low one shows the opposite.
  • The ratio can be interpreted as a “fear” indicator as a high value shows investors are pushing the price of a defensive asset (gold) vs the price reflecting the health of the “real economy” (oil)
  • The ratio has historically been between 10x and 30x. It is now more than 50x!
  • What does the ratio tells us? Unless you believe that things are “different this time”, we should expect the gap between gold and oil prices to fall towards its historical range. It doesn’t necessarily mean that gold prices will fall, only that they will rise less (or fall more) than oil.


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