Comparing Oil vs. Gold

Another Way to Measure Inflation is to compare one commodity to other commodities such as housing, the stock market, oil or gold. In the past we have compared Stock Market vs. Gold but today I’d like to compare the price of Oil vs. Gold.

Oil vs. Gold

Since gold is one of the oldest forms of money we can compare fiat prices with gold prices to get one measure of inflation. In the modern economy, oil is just as important, if not more important, than gold. Everything depends on oil, it heats our homes, runs our cars and machinery, and produces our electricity which in turn runs our computers, the internet, entertainment, lights, and HVAC. An argument could be made that our currency should actually be based on oil rather than gold. The only problem is portability… who wants to carry a barrel of oil to the grocery store? And a single ounce of gold will buy multiple barrels of oil.

Oil as a measure of inflation:

Oil might also serve as a measure of inflation.

Today, I’d like to compare the price of gold with the price of oil. Theoretically, since both are commodities, if inflation were truly democratic, all prices would rise equally. Thus, the ratio of the price of gold to the price of oil would remain constant. So then, as the value of the dollar depreciated (due to an increased supply of dollars) the price of both gold and oil would increase in tandem. This, however, has not happened. Both oil and gold are subject to external forces that have affected their price. So at times, each has been overpriced compared to the other.

Traditionally, economists have measured oil in terms of gold, i.e., one barrel of oil is equal to some fraction of an ounce of gold (ounces per barrel of oil), which, if gold is actually money in disguise, it makes sense to say ounces per barrel, just as you’d say dollars per gallon.

From the chart above, we can see that at the peak in 2005, when oil $50.04/bbl and gold was $444.74 per ounce, oil was expensive compared to gold. Interestingly, by 2008, oil had increased in price to $91.48 (an 82.8% increase), but gold had increased to $871.96 (a 96% increase). So the ratio was fairly similar.

And by 2016, gold was $1,250.74, but oil had fallen to $36.34, so oil was cheap.

Barrels per Ounce

But I prefer dealing with whole numbers rather than fractions of an ounce, so I’ve created the following chart in terms of the number of barrels of oil a single ounce of gold will buy, i.e., barrels per ounce.

Assume for a moment that an ounce of gold is exactly $1000 and a barrel of oil is $100. Let’s look at how many barrels of oil an ounce of gold would buy. Then we are looking at barrels of oil per ounce of Gold. So if Gold is at $1000 /oz and Oil costs $100 per barrel, it is obvious that one ounce of gold would buy 10 barrels of oil, right? 1000/100 = 10.
The mathematics works out like this:

For the period when Nixon set price controls on oil, we used the free market price of oil (called stripper because some “stripper” wells that were nearing their end of life were exempt from price controls.) We also used the free market price of gold rather than the government fixed price of $35 / ounce.

• Gold Prices source: Kitco
• Oil Prices source: Plains-All-American

Barrels per Ounce Chart Analysis

In looking at this chart, we can see that the average since 1946 has been that one ounce of gold would buy 16.49 barrels of oil. Therefore, whenever one ounce of gold would buy more than 16.5 barrels of oil, either oil was cheap, or gold was expensive. And conversely, whenever an ounce of gold would buy less than 16.5 barrels, then oil was expensive, or gold was cheap. As of this writing in December 2025, Gold is expensive when compared to oil. However, when we remove the earlier period when the price of gold was fixed, the average since 2000 has increased to 21.84 barrels per ounce.

Warning: Just because Gold is currently expensive doesn’t mean it can’t get more expensive if Central Bank Demand continues!

Knowing this, we can decide when we should be buying gold and when we should be investing in oil instead. With the benefit of 20/20 hindsight, we can see that from 1948 through 1970, oil was expensive and/or gold was cheap.

That makes sense because the price of gold was fixed, and that is what eventually led to Nixon having to stop selling U.S. gold to foreign governments (i.e. closing the gold window) but also opening up gold sales to U.S. citizens. Once that pent-up demand was released from 1970 to 1972, the price of gold shot up 62% while oil increased 6.2%.  By 1973, oil was up over 40% but gold was up over 170%. Over 10 years (by 1980), oil was up over 1000% but gold was up over 1600%.

But what about that brief period from 1973 to 1975 when gold was expensive compared to oil? Well, from 1973 to 1974, oil prices were up almost 97% while gold prices were “only” up 58.13%. The following year, oil prices actually fell. So from 1973 – 1975, oil was up 61+%, and gold was up 65%. But then in 1976 gold fell, and oil took off so that by 1978 oil was up 214.7% and gold was “only” up 98.6%. So, once again, when the ratio indicated that gold was overpriced, oil performed better.

So if you had held gold from 1970 -1973, then switched to oil from 1974-1976 and back to gold for 1976-1980 instead of just being up 1600% you would have been up about 3600%!

Neither oil nor gold was a good investment in the 1980s, with gold losing 37.6% and oil losing 38%.  From 1990 to 1999, oil lost another -28.6% and gold lost -27.3%. However, by buying the cheap one and simultaneously selling the expensive one “short,” you could still have made a tidy profit.

Note that in 1998, oil was cheap, or gold was expensive, and from 1999 to 2000, oil was up 65.6% while gold was basically flat. In the early 2000’s gold was once again very cheap, and it went from $271 in 2001 to $1669 in 2012 when oil was cheap again. Remember, these are average annual prices, so you wouldn’t need to get the timing exactly right to hit them.

Where are We Now?

In 2019, Oil averaged $50.01 a barrel, and gold averaged $1,514.75, so one ounce of gold would buy just over 30 barrels of oil (which is well above average). But in 2020, the ratio jumped to an astronomical 54.87 barrels per ounce of gold. This is more than 3 times normal. This tells us that either Gold was expensive or Oil was cheap (or both). In this case, probably both, due to COVID, there was an Oil glut, so oil was cheap. And since gold is a crisis hedge, due to the extreme fear levels… gold was in greater than normal demand.

In 2021, oil averaged $60.84 and gold averaged just under $1800. so one ounce of gold would buy 29.568 barrels of oil. And in September 2024, one ounce of gold would buy 40.7 barrels of oil.

Due to Russia’s invasion of Ukraine, President Biden  when

In April 2024, President Biden shocked the international community by authorizing a new mechanism to seize and use certain Russian sovereign assets held in the U.S. to support Ukraine.  This caused Central Banks to wonder if the U.S. would do that to them, so they began aggressively accumulating gold as financial reserves, thus driving the gold price up.

Note: Despite this authority, to date, the U.S. has not yet fully confiscated large sovereign holdings of Russia’s central bank — instead they remain frozen under sanctions.   The U.S. Department of Justice has seized or frozen assets of individual Russian oligarchs and enablers (such as yachts, aircraft, and property) under existing law, with totals in the hundreds of millions of dollars, and transferred some proceeds to Ukraine as aid.

A full list of prices and ratios is below.

You might also like:

• Another Way to Measure Inflation
• Stock Market vs. Gold
• Inflation-Adjusted Annual Average Gold Prices
• Is It Time to Admit That Gold Peaked in 2011?
• How the Dollar Affects Gold Prices

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