



Today we update our long run historical analysis of the relative value of gold, crude oil and U.S. equities. All three are dollar denominated, are notional inflation hedges, and have reliable long term price records (we use 30 year histories as well as shorter time periods here). Two anomalies pop out from our work.

The most notable is that gold is very expensive relative to crude. The current gold/oil ratio is 22x (that is, 22 barrels at spot prices = 1 ounce of gold). The 30 year average is 16.7x, and the 10 year average is 13.1x. Oil would trade at $72 or gold at just $902 to reestablish long run equilibrium.





The current gold/oil ratio is 22x (that is, 22 barrels at spot prices = 1 ounce of gold). The 30 year average is 16.7x, and the 10 year average is 13.1x. Oil would trade at $72 or gold at just $902 to reestablish long run equilibrium. The second aberration is the ratio of the S&P 500 to crude oil prices. Currently, U.S. stocks trade for 39x spot oil; the 30 year average is 28.2x, and the 10 year average is 17.5x. To put oil prices back on a “Normal” footing with stocks based on the last three decades of price history would mean crude prices at $74/barrel.

Bottom line: crude looks cheapest, gold looks fairly valued, and stocks (no surprise) look expensive based on this analysis.

Read the full analysis on our blog at Convergex.com.