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Crude Oil Very Expensive Even When Priced In Gold at Trader’s Narrative

Last week I showed a long term graph of the price of crude oil adjusted for inflation. But some may disagree that that graph shows a complete picture since inflation can be misstated and since the US dollar is a worthless pieces of paper. Gold is real money. Or so I’m told. So let’s take a look at crude oil priced in gold:

crude oil priced in gold long term chart

Well, it turns out that even priced in that “currency” oil is expensive.

In fact, each time that the ratio of oil to gold spikes up, the price of oil (in dollars) falls. The first spike on the chart is in late 1990 and corresponds to the Persian Gulf war.

The next time was in late 2000 when crude oil peeked above $36 and then retreated. The ratio’s significance gets a bit wobbly in 2005 since oil didn’t find a top until the summer of 2006.

And finally, that brings us to today. Or rather last Friday when oil closed up the most dollars in a day in its trading history and hit the circuit breakers. Could the explanation be that the market smells war (with Iran)? Many believe so.

The above graph looks like it might have a slightly upward channel - which would imply that if this ratio has any significance, a top in oil is close at hand.

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12 Responses to “Crude Oil Very Expensive Even When Priced In Gold”  

  1. 1 Holly

    This one looks more fact reflective–maybe expensive (for now) but it’s not a bubble yet! It may correct soon but in long run it’s still bullish.

  2. 2 chavez

    ya, crude will keep going higher until goldman sachs has all your money, ROFLMAO

  3. 3 Babak

    Holly, maybe a longer term chart would be more helpful but I’m lazy and worked with what was available.

  4. 4 Edward Kim


    Please show the crude chart in terms of the Aussie, Canada, Swiss, and Euro currencies. The chart might look interesting.

    Edward Kim
    Managing Member
    2GTT, LLC

  5. 5 Babak

    Edward, sure although I don’t think it will add much.

  6. 6 Bruce

    When the oil price starts moving around by 3 and 5 and 10 dollars a day as it has begun doing, I reckon we may be only at the beginning of a very volatile month or two…. good chance to clean up …and be cleaned up!!

  7. 7 Elizabeth

    Thanks for this great chart. As I’m writing this (Sep. 15 ‘08), oil has “plummeted” to $92 from $148, priced in US dollars. Looking at this chart of crude-priced-in-gold, I bet a RSI indicator here (granted, with your log configuration, but still…) would have shown massive negative divergences that would’ve lead to a great trade (I’m thinking this configuration, though longer term, looks like BP just before Soros shorted and made a billion USD in ‘93). Would you please update this? I don’t know any other site that has this crude-priced-in-gold relationship. Really appreciate it!

    Terrific site. Thanks.

  8. 8 Babak

    Elizabeth, thanks for the compliments :) I’ll update the chart this week. If I forget, please remind me, this is a hectic time.

  9. 9 Elizabeth

    Hi Babak,

    I know it’s a hectic time, but you asked me to remind you to update the crude priced in gold chart. It should be a great time to look at this again, given the plunge in oil prices and spike in gold.

    Thanks, Liz

  10. 10 Babak

    Elizabeth, yes, of course. Thanks for the nudge :)

  1. 1 Crude Oil Priced In Euros & Yen
  2. 2 Seeking Alpha : Update: Crude Oil, Priced in Gold

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