The ideal fuel: the gold/petrol ratio
News Arnulf Hinkel, Financial Journalist – 22.07.2024
Compared to 1978, US motorists today can get more than four times as far with the amount of petrol that an ounce of gold can buy. In 1978, an ounce of gold in petrol could get you just under 4,900 miles, whereas today it is 20,500 miles. The petrol purchasing power per ounce of gold is currently a good 600 gallons of fuel – even though the US petrol price has almost doubled since July 2016 alone. However, this increase in the price of petrol is offset by lower fuel consumption compared to previous decades: on average, cars in the US today need only half as much petrol per mile as they did in 1978.
What the gold/petrol ratio tells us
After the Mac-Gold Index, the gold/iPhone ratio and the gold/skiticket ratio, it is now the gold/petrol ratio that clearly illustrates the extent to which the precious metal fulfils its role as a store of value. The team behind the ‘In Gold we trust’ reports has compared gold and petrol price trends from Independence Day in July 1978 to July 2024. The fact that the price of petrol was compared with that of the precious metal is certainly no coincidence: for most Americans, especially in rural regions, the price of petrol is an indicator of the current economic situation in the US. This phenomenon was noted by the Biden administration when, in a survey last year, most Americans rated the economic situation as poor, although it was objectively quite good.
Gold is primarily a long-term investment
The gold/petrol ratio not only demonstrates the function of the precious metal as a hedge against inflation and a store of value, it also shows that gold may disappoint in the short term and should therefore primarily be seen as a long-term investment. The historic low point in the petrol purchasing power of gold was not in July 1978, but in September 2005, when one ounce of gold could buy only 156 gallons of petrol. The high point of the gold/petrol ratio, on the other hand, was at the end of the 1970s during the gold rally at the time, when you could have purchased no less than 925 gallons of petrol for an ounce of gold.
