An ounce of gold currently buys about 17.45 barrels of oil, well above the historical average and not something that should fill traders with cheer.
You can get a sense of the gold-to-oil ratio by factoring an oil fund like USO against GLD, which tracks the gold price:
Gold closed up $39.70, or 2.1%, today to settle at $1,891.90 an ounce on the Comex division of the New York Mercantile Exchange. The U.S. benchmark crude WTI rose about 1% on Monday, though at $83.46 a barrel, its down about 10% over the last four months.
When the price of gold rises faster than oil — or, as now, gold rises when oil prices are actually declining — the ratio goes up. This, in turn, is a good gauge of the global “flight to safe havens” going on in global markets.
Going back for more than a decade, the ratio has averaged around 12 barrels of oil per ounce of gold.
The only other time we have seen the ratio at more than 17 was in late 2008, when the global credit crisis was spiraling out of control.
Is this a lead-up to bad times ahead, or only the biggest challenge to market optimism since the credit crunch? Hard to tell, but in either case, be careful out there.