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What is the gold-crude ratio telling us?
Ole Hansen
Head of Commodity Strategy
The Middle East war has pulled the gold-crude ratio sharply lower this month, and in order to understand the slump, it is useful to look back at 2020, when the ratio surged to record highs during the pandemic. That episode highlighted how strongly the ratio responds to large, asymmetric shocks in either demand or supply.
In 2020, the global economy experienced a severe demand shock. Energy consumption collapsed, sending crude prices sharply lower, while gold rallied as central banks cut rates aggressively and injected liquidity to stabilise growth. The ratio moved higher because oil weakened at the same time as gold strengthened.
The current environment is effectively the mirror image. What we are dealing with today is primarily a supply shock in energy markets, centred on the Middle East and disruptions to key export flows. This has driven a sharp increase in crude prices as physical markets tighten, particularly in refined products.
At the same time, gold which up until recently had enjoyed a record run of gains has come under pressure—not necessarily because its longer-term drivers have disappeared, but due to a shift in the macro backdrop. Higher energy prices are feeding into inflation expectations, which in turn are pushing bond yields higher and forcing markets to reassess the timing and extent of rate cuts. This tightening in financial conditions reduces the appeal of non-yielding assets such as gold in the short term.
In addition, there is a clear liquidity component. Following a prolonged rally, gold had become a crowded long. In periods of cross-asset stress, gold is often sold not because it is fundamentally weak, but because it is one of the most liquid assets investors can tap to meet margin calls or rebalance portfolios. This dynamic appears to have played an important role in the recent correction.
In other words, the two markets are responding to different drivers within the same macro shock. Oil is reacting to immediate supply constraints, while gold is adjusting to tighter liquidity, rising yields, and shifting policy expectations.
In short, the decline in the ratio is less about capital rotating between the two assets and more about a divergence driven by a supply-led energy shock colliding with a repricing of global monetary conditions. It is also worth recalling how quickly the gold-to-oil ratio reversed following the 2020 spike. Once the initial demand shock passed, oil prices began to recover as mobility and economic activity normalised, while gold extended its rally, supported by ultra-loose monetary policy, negative real yields, and continued uncertainty. As a result, the ratio, having surged to extreme levels, started to compress relatively quickly as both legs moved in opposite directions.
A similar dynamic could unfold following the current supply-driven spike, albeit through a different sequence. For the ratio to move higher again from current depressed levels, two relatively obvious conditions would likely need to be met.
First, crude prices would need to stabilise or moderate. This could occur if supply disruptions ease—either through a de-escalation in the Middle East, partial reopening of key export routes, or a demand response as elevated prices begin to weigh on consumption and growth.
Second, gold would need to regain support from the macro backdrop. This would likely require a shift in market expectations towards slower growth or financial stress, leading to lower bond yields and a renewed focus on rate cuts. In such a scenario, gold would benefit from both declining real yields and its role as a hedge against economic and financial instability.
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