Gold to oil ratio

The Iranian conflict is creating dislocations, with the blockage of Hormuz and its subsequent shock on oil prices. Take a look at the chart below: since the 70’s the ratio of gold vs oil has been contained in a range between 10-30 times. That was considered the norm. In 2020, thanks to COVID that ratio spiked to 70, as the world came to a stop, with minimum usage of oil, and gold spiked thanks to global monetary and fiscal stimuli. It it came back relatively quickly. What do we make of the ratio today and what are the implications? It spiked again to 70, and it’s now at 40 times. Two scenarios are possible: in order for the ratio to go back to that old average of 20 times, it means that either gold falls back to $2000 for a price of oil of $100, which seems unlikely with the amount of debt in the world these days, or oils goes up to $250/barrel or more if gold continues to go up, and stays above $5000. Of course and argument can be made that “this time is different”, and the 20 ratio is an old regime and we need another one, much higher, let’s say 40. I’ll leave that to your judgement. Is the world ready for a $200+ price of oil?

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