Oil Priced in Gold Near 150 Year Lows

In exploring the question on everyone's mind 'is oil cheap and has it bottomed?", energy analysts at Bernstein looked at oil priced in gold and found that it is approaching 150 year lows.

The firm believes using gold as a comparison is appropriate as it is considered a store of value and it has desirable property of being somewhat counter-cyclical – when currencies or economies experience volatility, gold tends to appreciate as investors seek safety. Also, looking at oil versus currencies just told them more about the value of the currencies, not oil.

Today an ounce of gold buys 37 barrels of oil. This, according to the research, is two standard deviations above the average in the period studied. The data also shows that Gold buys more oil than any time since the 1980s.

Only a few times in history has it been near this low of levels versus gold: the Great Recession, Great Depression, and late-19th century crises.

Asking if the correction is simply a case of mean reversion, with oil coming down from a lofty price, the analyst said when compared to the S&P GSCI Index oil looks as bad as the Great Recession trough.

The firm also looked at some other comparison to oil. One was hamburgers. A barrel of oil in 2015 could be traded for 10 big mac, which is the fewest since 2003.

Overall, the firm remains long-term believers in oil but said short-term supply risks (Iran and Saudi.) and demand worries (China) provide near-term overhangs that could keep prices low.

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