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Gold-oil ratio soars to 1998 high on relentless crude rout

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Gold prices are at their highest relative to oil since the late 1990s as bullion holds its appeal while crude’s downward spiral shows no sign of ending amid rising supplies and lackluster demand.
 
The move shows oil is tumbling on its own fundamentals while bullion is seen as a safer bet for investors at a time when crude prices are down by nearly half.
 
For one ounce of gold , used as a hedge against inflation, investors could buy 24 barrels of U.S. crude oil on Wednesday, the most since 1998, according to data compiled by Reuters.
 
That ratio based on monthly averages has doubled since October as the oil rout – the market’s second-worst behind 2008
 
– has deepened.
 
The soaring ratio reflects diverging directions for the two markets: while gold has lost much of its luster over the past two years as the U.S. Federal Reserve has prepared to rein in its stimulus program, prices have garnered some support recently on safe-haven interest amid renewed turmoil in the euro zone.
 
Gold and oil often trade in similar directions, but gold has not followed oil in its current spiral as it tumbles on its own bearish fundamentals.
 

As U.S. oil prices have plunged by more than 50 percent since June, plumbing new multi-year lows on Wednesday below $50 per barrel, the spot gold market is down just 9 percent over the same time period.

“It’s telling us that gold is not a one-trick pony, it’s not tied to the oil price,” said Jeffrey Christian, CPM Group managing partner in New York.
 
“Investors remain more interested in gold because of issues other than the oil price, specifically, financial market stability, economic stability, international tensions between the United States and pretty much the rest of the world.”
 
While a rising ratio can sometimes indicate potential deflation, analysts said this was not the case, with crude excess being the main driver behind the widening gap.

Source: Reuters

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