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Tuesday, February 10, 2015

Gold Oil Ratio By Thomas Chaize


Gold oil ratio
The gold oil ratio corresponds to the price of the ounce of gold in dollars (31.103 grams) divided by the oil price in dollars (159 liters). For my calculations, I use the gold price, London listing, and oil, WTI Cushing Oklahoma, in a given month since 1986.

For example, in December 2014, the price of the ounce of gold was 1202.29 US dollars and the oil barrel price was 59.29  US dollars thus the gold oil ratio was 1,202.29 / 59.29 = 20.27.

This ratio exhibits a decreasing trend as shown by the two red lines (high and low bounds) on the graph below.

In 1986, you needed 15 to 30 barrels of oil to buy one ounce of gold whereas in 2009, 7 to 25 are sufficient.
Interestingly when this ratio is near the top red lines (high bound), it is usually the signal for the end of the oil price fall.

  • 1 July 1986, ratio 30, low point in oil prices in June 1986 to 13.4 dollars per barrel.
  • 2 October 1988, ratio 29.5, low point in oil prices in August 1988 to 15.5 dollars per barrel.
  • 3 December 1993, ratio 27, low point in oil prices in November 1993 to 16.6 dollars per barrel.
  • 4December 1998, ratio 26, low point in oil prices in November 1998 to 13 dollars per barrel.
  • 5 December 2001, ratio 14.4, lowest point in oil prices in November 2001 to 19.6 dollars per barrel (not a high peak).
  • 6 January 2007, ratio 11.8, lowest point in oil prices in January 2007 to 54.5 dollars per barrel (not a high peak).
  • 7 February 2009, ratio 24.13, lowest in oil prices in January 2009 to 39 dollars per barrel.
  • 8 January 2015, ratio 26.3, this is the first time in 29 years that the ratio is out of bounds. It corresponds to the ratio observed in the 80s and 90s.

  • The cycles of the XOI index and the gold oil ratio indicate that oil price is in a low area. We know that on the long term oil price is expected to increase  (peak production, increase in the marginal cost and growth of the world population).
    We also know that we are in a depression, we will go up, the question is when? Today, in one month, 12 months, 24 months?

    Difficult to answer, it will depend on the speed at which the offer is destroyed.
    Currently, large companies reduce exploration expenditures, the deep offshore is in the closet, risky drillings are cancelled, rigs in operation decrease in the USA, juniors can no longer finance themselves ... One only needs bankruptcies and takeovers for the panorama to be completed.

    Dr Thomas Chaize

    Note : In the recent years, the oil production of the largest companies has decreased, while investments increased considerably. Today they are decreasing their investment...

    Dr Thomas Chaize