(News Bulletin 247) – This ratio is supposed to give a fairly rapid signal of market confidence and general economic health. Due to the divergent trajectories of the two raw materials, especially the surge in gold, this indicator reached unprecedented levels. And Deutsche Bank estimates that it should rise further.

On the stock market, there are a plethora of market “troublemakers” indicators. We can cite in this respect the VIX, constructed from financial options with maturities of between 23 and 37 days and nicknamed “the fear index”. Another thermometer sometimes looked at remains the “fear and greed index”, an index which determines “the fear and greed” of Wall Street.

Launched in 2012 by CNN, the “fear and greed index” is supposed to give a general impression of the market mood, and thus know if it is overheating, or, on the contrary, if it is too cautious. This index aggregates seven criteria (the price of the S&P 500, the number of stocks with a record, etc.).

Another barometer can also be monitored by market operators, this time mixing two raw materials: the “gold-oil ratio”. This ratio remains stupid and nasty since it simply measures the number of barrels of oil (around 159 liters) that it is possible to buy with one ounce of gold (31.1 grams).

To give an example, with current prices

gold ($4,227 per ounce) and that of oil ($61.2 per barrel of Brent), this ratio stands at 69.

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Unprecedented levels since the start of the pandemic

The idea behind it is quite simple to understand: oil remains a cyclical commodity because oil demand is closely correlated with economic activity. Conversely, gold represents the safe haven par excellence for investors, and therefore tends to rise when other asset classes are suffering.

“The logic underlying this relationship is solid. Crude oil, a vital element of the real economy, comes under downward pressure when growth slows” while gold is sought after in these scenarios, noted Stephen Innes of Spi AM in 2024.

Please note, however, that certain factors have similar impacts on the two raw materials. This is the case of a fall in the dollar, which makes both asset classes less expensive for investors whose reference currency is not the greenback. Or even a reduction in key rates from the American Federal Reserve (Fed).

Ultimately, this ratio “offers a quick overview of economic health and market sentiment”, underlines asset manager DWS. Stephen Innes, for his part, speaks of a “sign of deep market stress”.

However, this ratio continues to push back its historic highs. Or almost. This indicator had reached levels higher than current ones for a very short period, i.e. the first months of the pandemic, in 2020, before collapsing again. This ratio had, for example, reached 88 in April 2020. It had even, according to an infographic from Deutsche Bank, been close to 100 points during this period, before falling below 50 points in May 2020.

In recent months, this ratio has regained altitudes not seen since the pandemic. The number of barrels of oil equivalent to an ounce of gold has exceeded the 60 level in recent days, after crossing the threshold of 50 in August. Such thresholds have therefore not been reached since 2020. Furthermore, this ratio is well above the long-term average (since 2000) of 18, according to DWS.

An imperfect thermometer?

Should we see the surge in this index as a worrying signal? In August, when this ratio barely exceeded 50, DWS judged that its surge effectively reflected “increasing economic uncertainty”.

However, the market is not in a panic situation comparable to that of 2020. The S&P 500, the major Wall Street index, recorded its best September (a month which nevertheless has a bad reputation on the stock market) in 15 years with an increase of 3.5% and the index is currently showing virtual stability in October.

Certainly, the almost uninterrupted rise in equity markets, with the enthusiasm surrounding the rise of artificial intelligence (AI), leads some specialists to fear that the markets are in a euphoric bubble where valuations are disconnected from economic realities.

But it is also reasonable to think that the “gold-oil” ratio has, like any thermometer, faults.

“It is important to keep in mind that the ratio is a mathematical representation and therefore does not always accurately reflect the relationship between gold and oil prices,” reminded the trading platform Pepperstone in 2023. “As the saying goes: ‘The map is not the territory’”. For this company the ratio “represents only one piece of the puzzle” on the markets.

Taking the evolution of this ratio without any other form of consideration amounts to forgetting that oil prices are, of course, influenced by demand, and therefore by the economic situation, but also by supply. However, the latter may depend on political measures or decisions (and sometimes the lack of coordination) of the countries present in the great cartel of black gold producers, namely the Organization of the Petroleum Exporting Countries (OPEC) and their allies (OPEC+).

The fall in oil prices, with Brent falling by 15% in 2025, clearly marks a conjunction of these two factors.

“The price of oil has been a victim of fundamental economic factors: lower demand and higher supply. Global crude oil production has increased significantly, thanks to the increase in OPEC+ production,” explains DWS.

“Moreover, with the boom in shale oil, the United States has become a major player in oil production (which has boosted prices, Editor’s note),” adds the German bank.

A ratio set to expand?

Elements that were more diplomatic than cyclical may also have come into play. “Recent efforts (…) to end the conflict between Russia and Ukraine have also put pressure on prices. Successful peace negotiations could mobilize more Russian supply, which would put additional pressure on crude prices,” DWS noted in August.

Another example: Goldman Sachs pointed this week to the recent de-escalation of tensions in the Middle East, between Israel and Hamas, to explain the decline in black gold.

In the case of gold, certainly, the precious metal has clearly seen its appeal reinforced by economic and geopolitical uncertainties. But the impressive rise in the commodity (60% since January 1) was also fueled by more technical factors (fall in the dollar, interest rate cut) as well as by a resumption of purchases linked to index funds (ETF).

And above all by the continued strength of gold purchases by the central banks of emerging countries. The latter wish to either send a signal of confidence in their economy (Poland) or diversify their reserves to mark a break with the dollar (China, Türkiye).

“Initially, this trend was driven by countries’ concerns about sanctions on their foreign assets following decisions by the United States and Europe to freeze Russian assets. However, this trend has evolved into a broader strategy of diversifying dollar reserves and dollar assets,” UBS pointed out in February.

In other words, the surge in the “gold-oil” ratio, if it is partly due to economic stress factors, can also be explained by more political considerations without direct link to the economic situation.

In this sense, this ratio does not necessarily reflect more economic uncertainties than last spring, when the Trump administration announced reciprocal customs duties. The VIX had reached its highest since the pandemic, at more than 50 points, at this time. The Wall Street Fear Index has now fallen to 23.

Deutsche Bank also judges that the ratio still has room to rise. The bank estimates that it will cross 72-73 barrels in 2026, the German establishment retaining Brent at 55 dollars per barrel next year for an ounce at 4,450 dollars (compared to around 4,100 at present).