Sunday, September 04, 2005

$1178 Gold Price with $100 Oil Price based on Gold Oil Ratio

Tim Wood has written an article about the gold oil ratio in light of Hurricane Katrina.

"Katrina has now set the stage for a possible near-term realization of Goldman Sach’s much quoted and often disparaged forecast of an oil price super-spike to $100 per barrel." says Wood.

Wood says that based on the long-term gold oil ratio of 17.44 barrels per ounce, the gold price is “expected” to be $1,178, whilst the oil price is expected to be just $25.46/bbl. Wood says the last time the gold price came anywhere near the $1,000/oz level was in February 1983 when the inflation adjusted gold price reached a monthly average of $989/oz.

Wood says, If we accept that the oil price fundamentals are so superior that we’ve entered a new era, then we might adjust the gold oil ratio to half the long-term average. At that ratio the expected gold price is $589/oz and the oil price would be $50.92.

Looking ahead to a possible $100/bbl spike, the “new era” gold oil ratio of 8.72bbl/oz would imply a gold price of $872/oz. At the long-term average, $100/bbl implies a gold price of $1,744/oz.

More on the gold oil ratio.