The most important gold ratios for investors

As is well known, gold has a largely neutral correlation to equities and bonds in times of economic boom, which usually turns negative in times of crisis, thus acting as a portfolio stabiliser. In contrast, gold has the strongest positive correlation to other precious metals. These two qualities of gold serve the calculation of ratios, i.e. comparisons of the price developments of different asset classes, as indicators for upcoming or already occurring price or economic developments.

Gold ratios as economic and crisis indicators

Gold shows a slightly positive correlation to oil, which turns negative in the event of a crisis. Therefore, the gold-oil ratio is considered a reliable crisis indicator, as a look at the historical data confirms. Another important indicator is the copper-gold ratio, which reflects investors’ faith or lack thereof in an economic boom. The development of the copper-gold ratio can also be juxtaposed to that of the real interest rates and thus used to estimate the real growth expectations of the bond market.

Gold ratios as price development indicators

Is gold currently over- or undervalued? The gold-silver ratio and the gold-platinum ratio serve to rate the gold price in relation to other precious metals popular with investors. The two indicators facilitate investment decisions since they show which precious metal is currently undervalued by comparison. A reliable long-term comparison of the gold price with the stock market is provided by the Dow-Gold Ratio, setting the performance of the precious metal against one of the world’s most important stock indices since 1896, thus enabling the identification of trends and trend changes. The Dow-Gold Ratio has more than halved since the turn of the millennium in favour of the precious metal, from 38.65 in 2000 to only 17.55 today.