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The gold-to-oil ratio recently reached a 3-year high (Figure 1) after gold hit an all-time high this week, surpassing the $2,500/ounce mark with a mighty +21.5% YTD return. In simple terms, 35 barrels of crude oil roughly equals the value of one ounce of gold. As the historical 5-year average is 28, the high ratio indicates that gold’s safe-haven status is being amplified amidst global economic uncertainties and volatile energy prices.
From the WTI supply side, crude oil production in the US is continuously increasing, topping at 13.4m barrels per day and rising +21.2% over the last 3 years. Additionally, the OPEC+ alliance is expected to increase oil supplies next quarter, but the International Energy Agency predicts that inventories will still grow even if OPEC+ delays output increases. Compounding concerns, China’s continued economic weakness is adding pressure to the global oil market, marked by declining home prices, slower industrial output, and rising unemployment.
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