Friday, December 19, 2008

 

Gold-Oil Ratio

There is a long observed relationship between the price of gold and the price of oil.
Gold-oil ratio = price of gold (per oz) / price of crude oil (per barrel)
The meaning is just how many barrels of crude oil for an ounce of gold.
Historically, the ratio has been @15 on average.
Technically, if it is above 20, either gold is over-valued or oil is under-valued. So the recommended action is either to sell gold or to buy oil.
If it is below 10, either gold is under-valued or oil over-valued. So the recommended action is either to buy gold or to sell oil.

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