Monday, November 16, 2009

The Gold to Oil Ratio

In addition to fundamental supply and demand oil prices float against the US dollar. As the dollar weakens oil prices in dollars rise. This dollar weakness has accounted for some of the rally in oil prices since the 1990s.

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Gold can be considered to be a currency just like the dollar or euro. Gold is at an all time high against the US dollar of US$1,135 per troy oz today. It is interesting that the price of oil in gold terms (1 troy oz currently buys 14.38 barrels) is at the bottom of the range in which it traded during the 1990s. In other words, oil in gold terms looks much less expensive than in US dollar terms.

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