Implications of the gold-to-oil price ratio

The gold-to-oil price ratio is often viewed as a unique indicator of global economic conditions and market sentiment. It captures the ongoing ‘tug-of-war’ between gold as a safe-haven monetary asset and oil as a key industrial commodity. 

Historically, elevated gold–oil ratios have coincided with periods of economic stress, heightened uncertainty, and defensive investor positioning. Conversely, a low ratio tends to occur during periods of strong economic expansion, when energy demand is high and confidence is abundant.

The current gold bull market stands out not only for the magnitude of the gold price appreciation — approximately 200% over the past two years — but also for the behaviour of the gold–oil ratio, which has reached record levels. 

This contrasts sharply with the previous gold bull market between 2001 and 2012, when gold prices rose by nearly 600% but the gold–oil ratio remained relatively contained.

Source: FactSet

The key difference between the two cycles lies in the oil price. During the earlier gold bull market, rising gold prices coincided with a sustained rise in oil prices. That oil strength was driven by the structural demand created by China’s transformation into a global industrial powerhouse. 

Rapid urbanisation, infrastructure build-out, and manufacturing growth placed sustained upward pressure on energy prices, limiting the expansion of the gold–oil ratio.

The current cycle looks very different. While gold prices are surging, oil markets remain subdued. This weakness reflects China’s more fragile economic backdrop. Unlike previous cycles, authorities have been reluctant to aggressively stimulate the property sector — historically a key engine of growth. 

At the same time, the U.S. manufacturing sector is experiencing a prolonged period of weakness. Consequently, energy demand has remained soft, keeping oil prices depressed even as gold continues to climb

This divergence has profound implications for gold miners.

Energy typically accounts for around 20% of a gold miner’s cost base. In the previous gold bull market, rising oil prices absorbed much of the benefit of higher gold prices, muting operating leverage and limiting margin expansion. Miners earned more, but largely in line with the gold price itself.

In the current bull market, miners are making hay while the sun is shining. With oil prices trending lower and gold prices reaching new highs, margins have expanded dramatically. The record gold–oil ratio is translating directly into record profitability. 

This dynamic is clearly visible, especially over the last decade, in the average EBITDA margins of the world’s four largest listed gold miners — Newmont, Barrick, Agnico Eagle Mines, and AngloGold Ashanti — which are now at all-time highs.

Source: FactSet

Unlike prior cycles, when earnings broadly tracked movements in the gold price, the current environment of rising prices and widening margins has driven a sharp acceleration in earnings growth. The effect is so pronounced that forecast earnings appear almost vertical. 

A review of Newmont’s earnings per share over the past twenty years, the world’s largest gold producer, illustrates just how different this cycle has become.

(Source: FactSet)

While history suggests that commodity cycles rarely persist indefinitely, the current divergence between gold and oil has created an unusually favourable operating environment for gold miners. 

The key questions for investors remain: how long the gold price can continue to rise, and whether oil prices remain structurally subdued. The answers to those two questions will ultimately determine whether today’s extraordinary margins prove cyclical or something more enduring.