Yesterday I suggested that it can be difficult to put a correct valuation on gold. With all of the chatter about gold corrections and with John Taylor predicting $1,900 gold by October, it is worth taking a look at one simple measure. How many barrels of oil can you purchase with just one ounce of gold. The answer has been relatively stable:
The ratio of gold to oil has been rather range bound
Based upon over 65 years of data, I would say that the average ratio of gold to oil has been 15 times. Put another way, the current level of 16.3x is just slightly above the 65 year average. On one metric alone, I cannot suggest that gold is overpriced without saying that oil is overpriced.
Listen to John Taylor’s Bloomberg interview in its entirety:
