'Gold-oil ratio' looks set to push gold prices higher

People investing in gold are looking to the future with great optimism as a result of the continued discrepancy in the 'gold-oil ratio' of prices in the current economic climate.

If gold was considered as a currency, 7.3 barrels of crude oil would be required to purchase one ounce of gold at present prices.

However, the long-term average sits at 14.5 barrels, mainly because gold has not risen as sharply as oil in the past 20 years.

Devendra Nevgi, CEO and CIO of quantum asset management company Pvt Ltd, told the Economic Times: "Crude oil has moved up sharply from $38 in the 1980s to $123 (high of $144), whereas gold has not moved in tandem.

"It is still trading near $910 per ounce, a little more than the 1980s high of $850 per ounce."

The upshot is that for the balance to be redressed, either the crude oil price has to drop to $63 or the gold price needs to rise to $1,700.

But with the former already showing considerable rises over the past few months as a result of the global economic downturn, the inevitable conclusion is that now appears to be the perfect time to buy gold.

Mr Nevgi added: "With the US on the brink of a recession, financial crisis still not over, inflation not abating on higher food and commodity prices and the US dollar depreciating, all the positive factors for a gold price rise are in place."

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