Gold's Performance Has Outpaced Oil Over the Last Decade

The value of an asset is usually measured in euros or dollars.  Gold, the king’s measure of wealth – is no different.  The most recent measure of gold’s value was $1,388 per troy ounce or €1,229 per troy ounce.  These prices, measured in euros or dollars, are typical but in no way the only method at valuing gold.  Investors should always take a look at the values of gold relative to other assets when making an investment decision.  The following figure has a look at the value of gold and the value of oil relative to each other.  The view is of the relationship follows.

 

The Value of Gold Relative to the Value of Crude Oil

 

The following figure depicts the value of oil (West Texas Intermediate crude oil) in relation to the value of gold.  The measurement is grams of gold relative to the value of West Texas Intermediate Crude oil.  The chart begins in 1950 and goes through May 2019.  At the beginning point of 1950, gold was valued at 2.5 grams of gold per barrel of oil.  The value fluctuated relatively little from 1950 to around 1967. The picture is completely different since 1967.

 

In 1967, a little volatility crept in.  Then came the big volatility that has yet to disappear.  For the first part of the 1970s, gold gained significant value relative to gold.  That changed quickly in the latter half of the 1970s.  In 1977, oil’s value peaked at around 4.2 grams of gold per barrel of oil. 

 

When the 1980s rolled around, the trend was in the opposite direction.  Gold’s value expanded a good deal, reaching a value of just over 1.0 grams of gold per barrel of oil in the late 1980s.

 

Then came the last decade of the 20th Century and the first decade of the 21st.  The value of oil relative to the value of gold peaked in 2009 at 4.7.  The 4.7 grams of gold per barrel of West Texas Intermediate crude oil is the highest it has ever been.

 

 

 

Figure 1: Source: PricedinGold.com

 

After oil’s rise, gold began to gain favour.  The value of gold increased in value relative to West Texas Intermediate gold to 2016 at around 0.8.  This is the highest value of gold relative to oil ever.  

 

Shifting to today, the ratio of grams of gold to a barrel of West Texas Intermediate crude oil ended the month of May at around 1.5.  Interestingly, this 1.5 is approximately 28 percent lower than it was in 1950.  Put another way, gold increased in value by about 28 percent more than the value of oil over the past approximately 70 years.

 

Conclusion

The world’s most well-known precious metal – gold – is usually measured in troy ounces of gold per dollar or euros.  For investors, it is always important to measure an asset, such as gold, relative to another asset, such as the value of oil.  In this case, the measure was the value of a barrel of West Texas Intermediate crude oil.  Unsurprisingly, comparing the value of gold relative to the value of oil exhibits some wide variation.  The most recent figure had the value of gold up 28 percent over the past 70 years relative to the value of a barrel of West Texas Intermediate crude oil.  Not bad for owners of gold, not bad at all.  What the next 70 years will show is anyone’s guess, although the evidence of the past suggests a promising coming Century for holders of the world’s most respected precious metal.