The Conversation (0)
Mineweb reported that the gold-oil ratio, which measures how many barrels of oil can be bought with 1 ounce of gold, is currently at a record high of 37x. Over the last few decades, spikes in the ratio have resulted in “something systemtically serious” on a global scale.
Mineweb reported that the gold-oil ratio, which measures how many barrels of oil can be bought with 1 ounce of gold, is currently at a record high of 37x. Over the last few decades, spikes in the ratio have resulted in “something systemtically serious” on a global scale.
As quoted in the market news:
[Jean Pierre Verster from 36ONE Asset Management] advises caution when dealing with ratios. “The movements of the two parts can sometimes lead to strange and non-intuitive outcomes. This ratio has blown out, but it doesn’t necessarily mean much,” he said. He also noted that a spike in the ratio doesn’t necessarily point to a coming crisis. “It didn’t spike in 2003; it didn’t spike before the dot-com bubble and it didn’t spike before the Gulf wars. It spiked at the end of 1998, during the Russian rouble crisis and not before it.”
“The more extreme the ratio gets, the more likely it is to change,” said independent analyst Ian Cruickshanks. Reviewing long-term oil price data, he said oil is currently within the $10 to $40/barrel range in which it traded from 1980 to 2003. Thereafter, a surge in liquidity in financial markets, spurred by the US Federal Reserve after the 9/11 terrorist attacks, caused prices to spike all the way up to a peak of $140/barrel in 2008. He said the financial crisis caused prices to fall to a previous peak of $40/barrel before recovering the $100 to $120/barrel range maintained until 2014.
“If oil prices remain low, the price of energy will not drive inflation. The new hedge against inflation will be the dollar and not gold, which is bad news for commodity producers like South Africa,” Cruickshanks said, forecasting GDP growth of 0% this year.
