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.