Measuring up: An ounce of gold buys 33 barrels of oil, most since 1988
With oil prices reeling from an oversupply and gold getting a boost from demand for a haven, Brent crude is the cheapest relative to the precious metal in a generation.
Bullion has climbed 4 per cent this year to $1,103.58 an ounce, while Brent futures slumped 11 per cent to $33.32 a barrel, near an 11-year low. An ounce of gold buys more than 33 barrels of oil, the most since 1988. The average ratio has been 16.
“By longer-term historical trends, crude oil should be trading for almost double its current $33-a-barrel price just to maintain its historical price relationship to gold,” Nicholas Colas, chief market strategist at ConvergEx Group LLC in New York, wrote in a report.
Meanwhile, with gold trading near a two month high, its price buys 78 ounces of silver, near the most since August. In the past two decades, the ratio has only been above that level on about five occasions, and never for more than a three months.
Gold has fared better this week as global market turmoil and geopolitical tension in the Middle East and Asia prompted investors to seek a haven. Silver has lagged because industrial uses account for half of its demand, compared with about 10 per cent for gold. History shows gold hasn’t been able to better silver for long during a crisis: while the ratio surged over two months in 2008, the cheaper metal then outperformed over the following year.