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Correlation Between Gold and Oil
In general, the price of gold and oil have a positive correlation.
When oil prices rise,there is an upward pressure on inflation. This enhances the use of gold as an inflation hedge.
Historially, oil purchases were made with gold.
One way of identifying trading opportunities is to use the gold-oil ratio. This can be calculated using this formula:
Gold-Oil Ratio = Price of Gold (per oz.) / Price of Crude Oil (per barrel)
In the last 30 years, this ratio has traded between 8 and 30. Here are a few charts:
The present gold-oil ratio is less than 9. If prices revert to the mean, that means we will have to see a pullback in the price of oil or rise in the price of gold.